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Fin24.com's Money Clinic has invited users to share their financial headaches.
Mpumi writes:
My car allowance in R6 000 a month. I travel about 40 000km a year, of which 6 000km are for business purposes. I do not keep a logbook. My current car is worth R116 000, but I'm thinking of buying a car worth R165 000. What would the tax implications be?
Money Clinic's diagnosis:
The taxman has tightened the screws on car (travel) allowances in recent years, increasing audits and threatening action against employers who pay car allowances as "perks" to employees whose only business related travel is a brief daily stroll to the water cooler. (The allowance can only be given to employees who have to travel as part as their job, and so stated in their employee contracts.)
A car allowances is paid out as part of a salary, but only 60% of the allowance is taxed every month (at the person's marginal tax rate).
At the end of the tax year, the taxman will determine what may be deducted from the allowance.
How much can be deducted is based on a table issued by SARS. The value of the car (up to a maximum of R400 000) and the amount of kilometres travelled for business purposes will be taken into account.
Since Mpumi does not keep a logbook, the maximum kilometres she can claim for business purposes (this does not include the daily commute to work) is 14 000km per year. The first 18 000kms of non-logbookkeepers' travel are deemed for private use and the maximum number of kilometer travelled per year is 32 000km. (Keeping a logbook is recommended if you travel more than 32 000km a year and your private travel is less than 18 000 a year).
Her kilometres, together with the value of her car, are computed according to the SARS tax table and an allowable deductible amount will determined. This will be put against the tax already paid on the allowance. If the deduction is too small, it could mean that you will owe SARS. But if you travelled a lot for business, it could mean that you paid too much tax during the year and will be refunded (once the rest of your tax situation is taken into account).
Jerry Botha of www.taxconsulting.co.za has gone through the numbers and has determined that the tax "break-even point" for Mpumi on a car of R165 000 with her number of business kilometres travelled, is a monthly allowance of R7 000.
"This means that the R6 000 allowance is justified and that she should get a tax refund on personal tax assessment (albeit a rather small one)."
- Fin24.com