SARS tightens up car tax
10 July 2012 | CHRISTY FILEN
The current legislation makes provision for the calculation of a taxable fringe benefit on the private use of vehicles provided to employees which is subject to a monthly pay-as-you-earn deduction.
The existing calculation is based on a ‘‘determined value’’ or original cost/retail market value of employer purchased/owned vehicles (either directly or via finance leases) but this does not cater for vehicles rented in terms of an operating lease, according to the bill.
However, the bill says that due to the economic downturn, increasing security and collateral requirements and companies tightening their belts, the provision of vehicles to employees under operating leases is becoming increasingly popular.
The proposal is limited to employer provided vehicles for business use, and the vehicle being rented under an operating lease from unconnected third parties at an arm’s length price.
The operating lease arrangement must include the following:
The employer must rent the vehicle from a lessor in the ordinary course of the lessor’s business (other than a bank, financial services business or insurer);
The vehicle may be leased by the general public for a period of less than a month;
The costs of maintaining the property must be borne by the lessor (including any repairs to the vehicle necessary due to normal wear and tear); and
The risk of loss or destruction of the property must not be assumed by the lessee.
The actual costs incurred by the employer in the form of the rental contract and related costs will then form the basis for the monthly value of the rental vehicle.
This value can then be reduced for proven business use by using business kilometres travelled as a percentage of the total distance travelled.
The benefit of using an employer’s petrol card must be reflected separately as a travel allowance.
The proposed amendments are effective in respect of years of assessment commencing on or after March 1, 2013.
Other proposals in the bill, among others, include the replacement of the remaining aspects of the deduction system for medical expenses with the tax credit system.
This is to include all medical scheme contributions and qualifying medical expenses for all taxpayers.
On the positive side, a new exemption is being proposed for compulsory annuity income that has its origins from non-deductible retirement contributions.
If retirement fund interests are used to generate annuity payments, these are fully subject to normal income tax.
No relief is currently available in respect of non-deductible retirement contributions against annuities received, even if the individual’s non-deductible contributions exceed all lump sums.
Comments from the public on the proposals need to be sent to National Treasury or Sars by July 312012.
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