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When it comes to company cars and travel allowances, these tax rules make all the difference

by , 07 July 2014
There are lots of factors that can and should influence your decision of whether you offer your employees a company car or travel allowance.

We've already discussed things like the car's depreciation and how much your employee travel. But we've yet to tell you about the most important factor of them all: How the tax works for each option.

Read on to discover the answer...

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Here's how the tax on a company car works

 
When you give your employee the use of a company car you won't pay any tax on it. What you will have to do, is work out your employee's fringe benefit tax.
 
This is based on how much your employee uses the car for his private travel. The rule of thumb is 3.5% of the car total value.
 
So if the car is worth R100 000, each month he must pay 3.5% of that amount in tax. 
 
 
But what happens with the tax on a travel allowance?
 
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Here's how the tax on travel allowances works

 
There's no tax on a travel allowance but you can claim it as a tax deduction. 
 
To do this, you have to over tax your employee (only with his permission though) and he can then claim that money as a deduction off his personal tax return. 
 
Just ensure your employee keeps an accurate logbook if you want to use the travel allowance as a tax deduction, or SARS won't accept the claim.
 
There you have it. Now you know how each option works in regards to tax. 

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