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Don't make these two mistakes when it comes to taxing a company car

by , 08 July 2014
So you just bought a new company car and now you want to give it to your employee, Mike, to use. Mike travels a lot and the car will really help him to cut back on the wear and tear on his wife's car that he has to keep using for business.

You've made the right choice with giving Mike your company car as a taxable fringe benefit. But you still need to be mindful of what you could cost Mike if you're not careful.

Here are two mistakes you need to avoid when it comes to taxing Mike for his use of the company car...

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Mistake one: forgetting to check Mike's logbook

 
Let's say, when you gave Mike the car you told him to keep a logbook. You said he must write down all of his use of the car, for business and private travel. 
 
But if you then forget to check Mike's logbook you could be charging him a lot more tax than you need to. You see, if Mike uses the car for business travel 80% of the time, you can decrease his tax by 60%! 
 
That's a huge difference and forgetting to do this could drain Mike's bank account faster than it needs to.
 
So what's the second mistake?
 

Mistake two: Forgetting to factor in depreciation 

 
As the car's value depreciates each year, then your employee's tax amount should too.
 
You see, you must work out Mike's fringe benefit tax on the car's total value. His tax is 3.5% of the cars value. 
 
So, let's say, the car's value goes from R100 000, to R850 000, that's a massive drop in the amount of tax Mike must pay. 
 
So avoid these mistakes, so you won't ever over tax employees, like Mike, again. 
 


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