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How to tax your employee if he uses two cars

by , 27 July 2016
How to tax your employee if he uses two carsJames, one of your employees, uses two cars interchangeably during the 2016 tax year. He sometimes uses his car, and the rest of the time he uses his wife's car.

You give him a travel allowance of R120 000 for the year.

But did you know that using two cars affects the tax on his travel allowance?

It's not just a simple tax calculation.

You have to factor in the value of each car, the fuel price for each car and the maintenance costs of each car.

These figures will affect the rate of tax you apply to James' salary.

Let's look at James' situation and see how you need to calculate the tax on both vehicles he uses in four easy steps.
 
 
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Don't just hand your employees the keys to a company car
 
If you're considering giving your employees a company car, you need to know how to treat this car on your payroll, before you do anything.
 
There's still some confusion about when to tax company cars. Especially if your employee uses it privately too.
 
So, if you give your employees a company car to use for business, and he sometimes uses it for private purposes, you need to know how to tax his private use.
 
Here are four simple steps you can follow.
 
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Four steps to tax your employee correctly if he uses two cars during the year
 

Step #1: work out the kilometers he's travelled
 
                                          James' Car          Wife's car
Cost price (incl. Vat)        R280 000              R410 000
Business km                       12 000                  11 500
Private km                          10 000                  14 200
Total km                                22 000                  25 700

Step #2: work out the fixed costs as well as the fuel and maintenance costs

  James' car His wife's car
Fixed cost = fixed cost/total km:
((84 945/22 000) x 100) x 365/365        
386.11c 474.26c
Fuel cost                                                  102.7c 126.1c
Maintenance cost                                    44.1c 60.8c
Total cost in cents                                                                 532.91c 661.16c
Total cost for the total business  km travelled 6 394 920 (532.91c x 12 000km) 7 603 340 (661.16c x 11 500km)
 
Now we need to calculate his allowable deduction. Let's have a look.
               
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Four steps to tax your employee correctly if he uses two cars during the year…continued

 
Step #3: calculate the allowable deduction of your employee's personal cars
 
To get the allowable deduction into rands take the total cost and divide by 100c/R

Allowable deduction                               R63 949.20 (6 394 920  / 100) R76 033.40 (7 603 340  / 100)
 
So, James will claim a maximum deduction of R139 982.60 (R63 949.20 + R76 033.40) for the 2016 tax year, but this will be limited to his actual allowance of R120 000.

Step #4: Factor this in on his payslip. We discuss how to do this in detail in chapter T09: How to tax travel allowances in the Practical Tax Loose Leaf. If you don't have a copy of the loose leaf yet, click here to get your copy.


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