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Depreciation: The deciding factor between a company car and a travel allowance

by , 04 July 2014
There's always a big debate when it comes to company car and travel allowances. Everyone wants to know which one's better and, particularly, which one will save them money.

The truth is, the answer depends on you and your company. There are lots of different factors that can affect this decision.

One of the questions you must ask yourself is: Do you want to have to manage the car yourself? If you do, then a company car's the better way to go. But you have to remember to include depreciation into that equation...

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Your company car's value will depreciate every year

We discussed before how your company car's value decreases by 15% each and every year. So if the car is worth R200 000, next year it'll be worth 15% less or R170 000.
The good news here is, as the car's value drops, so does the amount of tax your company pays on it. Eventually, the book value will drop to nil and you'll pay no tax. 
But your company might not want to spend money on a depreciating asset at all. In this case, a travel allowance may be a better option. 

Depreciation doesn't affect you if you offer a travel allowance

With a travel allowance, your employee will use his own car to travel. You then simply give him an amount each month to cover his costs or reimburse him for all his travel expenses
In this situation, the depreciation of the car has no impact on you. You're paying for the travel expenses and not your employee's car itself, so its value is irrelevant.
So take this into consideration before you decide which option is 'better' for your company.

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