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Do you know how to tax your employee if he pays for all the maintenance on his company car?

by , 11 June 2014
You bought a company car and you've allowed your employee, Tim, to use it for the past six months. Tim pays the extra tax on the fringe benefit quite happily.

But this month, the car had to have a service and its license renewed. Tim paid for both of these and he pays for all the petrol too.

This is a situation that bothers lots of employers. Your first reaction may be to try and reduce Tim's tax because of the extra money he spends on the car.

But you shouldn't be so quick to do so. Read on to find out why...

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What is Tim actually paying tax on?

All taxable fringe benefits, like your company car, have a tax of 3.5% of the determined value of the asset. 
 
So Tim pays tax based on the value of the car and not on any additional cost he pays on it.
 
The only additional expense that may change the tax is the service. But this will only happen if the service causes the determined value of the car to go up or down. 
 
This may actually result in Tim paying more tax. So be careful if you start to look into the tax implications of these costs.
So what can you do to help Tim with these costs?
 
Here's how Tim can get some tax back on those extra car expenses
 
The Practical Tax Loose Leaf says the best thing you can do is tell Tim to claim those extra car expenses from SARS when he submits his own personal income tax return.
 
This way, Tim can get a tax deduction on the money he spent and you can both be compliant with tax laws. 
 
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