Even though the calculation of car tax and company car fringe benefits like travel allowance and car allowance isn't complicated, it doesn't mean you can't be nailed.

Yet so many people still receive company cars despite the punitive fringe benefit tax imposed on this benefit. And maybe there aren't so many articles on car tax due to the simplicity of the calculation. Simply take the cost of your car, multiply it by 2.5% and add the figure to your monthly income.

But just like insurance companies don't reduce your premium when your car value has decreased, similarly SARS doesn't ask you whether your car fringe benefit is in fact correctly calculated.

#1 Car Tax Saving: Determined Value of Your Company Car

So let's find out how you can save tax on your company car. We are going to do this by first getting the 'determined value' calculation right.

Fringe benefits tax for example on your company car allowance and travel allowance is paid on a calculated value known as the 'determined value' as set out by SARS.

Let me explain. If an employer has purchased the vehicle and the recipient of the vehicle is the first user thereof, the taxable value is the cost excluding VAT and finance charges.

If you are given possession of the car part-way through the month, you are not liable for fringe benefits tax on the determined value for the full month. That means if you only started the 22nd of the month, the fringe benefit may be reduced proportionally by the 22 days.

But let's say you are the second user of a company car, compared to the fringe benefit on a new vehicle of the same make and model, it may seem like a good option. But it doesn't mean your tax saving is, because of the courtesy of inflation. Because if you are the second user the 'determined value' of the predecessor must be reduced by 15% for each completed year. That means if the 'determined value' was R200 000 of a new car, used for 2 years, it would be R144 500 after those 2 years.

#2 Car Tax Saving: Maintenance Plans

It is important that the dealer split the invoice between the actual cost of the vehicle and the cost of the maintenance plan. Always remember you are not taxed on the value of the maintenance. Don't give SARS extra tax money for something you should not be taxed on.

#3 Car Tax Saving: Not using your vehicle for certain time periods

If you don't use your company car for certain periods during the year you can enjoy some tax relief. But that only applies if you are out of town for business, not using the company car for a month or more and when it's left at the company's premises. In this case no fringe benefit is applicable.

For more information on car tax contact us, a registered tax practitioner situated in Gauteng.