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If you trade your company car for cash, you must know about the tax implications

by , 02 July 2014
Company cars are a hot topic. Our experts behind the Practical Tax Loose Leaf Service have answered hundreds of questions on this topic over the years.

One of the most common questions is how the tax on these company assets works. Recently we had questions from a sole proprietor, who sold his company car for cash. He wanted to know how SARS will tax this money.

Keep reading to find out how the tax works in case you find yourself in a similar situation...

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 Question: If I trade in my company car and get cash back, is it taxable?

 
Here are the details of Joe's question: This sole proprietor (a farmer) decided to trade in his 13-year bakkie. 
 
By the time he decided to trade it in, it had depreciated to the point that its book-value was nil. He did, however, get R40 000 for the old bakkie in the trade in. He put this money into buying a new double cab bakkie for his business. 
 
But now, he wants to know if the R40 000 he got is taxable.
 
Here's what our experts had to say on this matter...
 
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Here's our experts answer to this company car question

 
The experts behind the Practical Tax Loose Leaf Service say he must declare this R40 000 as taxable income. This is in accordance with the Income Tax Act.
 
The reason this money is income, is because the car no long had a monetary value as an asset. Therefore, the money is seen as income.
 
Because of this, SARS will tax that R40 000 the same way it'll tax the rest of Joe's income tax. 
 
So there you have it: If you've sold a company car that has no book value for cash, you must declare it as income. 
 

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