Chapter 3. Company Cars
3.1 Principles of Company Cars
As an alternative (or as an addition) to a travel allowance or a travel reimbursement, employers grant their employees the right to use company-owned (or rented) motor vehicles for private travel that could also include business travel.
The commonly used term “company car” is used in this workbook to describe a motor vehicle that is owned or rented by an employer, and the right to use that vehicle for private and/or business travel is granted by the employer to an employee.
Note that while travel allowances and travel reimbursements may not be paid to compensate an employee for his private travel expenses, company cars can be legally granted to an employee who only travels for private purposes.
The question of ownership or rental by the employer of the company car is an important distinction that must be made before the discussion of the tax calculation principles.
3.2 Company Cars that are Rented
Traditionally the motor vehicles used as company cars were purchased by the employer. However, in recent years, the number of vehicles rented (held by employers under an ‘operating lease’) has increased.
An ‘operating lease’ relates to moveable property and is defined in section 23A. For a lease to be an ‘operating lease’ the lease arrangement must contain the following elements:
1. The employer must lease the vehicle from a lessor in the ordinary course of the lessor’s business (not being a banking, financial services, or insurance business)
2. The vehicle must be available to lease to the general public for a period of less than a month
3. The costs of maintaining the vehicle (including any repairs to the vehicle necessary due to normal wear and tear) must be borne by the lessor; and
4. Subject to the claim a lessor may have against a lessee for failing to take proper care of the vehicle, the risk of loss or destruction of the vehicle must not be assumed by the lessee.
Any lease which does not satisfy these requirements (for example, a “finance lease”) is not an ‘operating lease’ as defined and would result in the tax calculation reverting to that of a company-owned vehicle.
3.3 Tax Calculation Principles
The tax calculation rules are based on the following two important principles:
1. The employer pays for all purchase costs as well as all running expenses, and
2. The company car is used for private travel only.
These two principles are the starting point of the tax calculation rules. There are exceptions and special cases to these principles that modify the tax calculation rules and that are discussed in sections that follow.
The use of a company car for private travel results in a taxable fringe benefit that is included in the employees’ gross income under paragraph (i) of the definition of “gross income”.
The rules to determine the cash equivalent income value of the taxable fringe benefit are provided in paragraph 2(b) read with paragraph 7 of the Seventh Schedule.
The Fourth Schedule then includes the income cash value of the fringe benefit into remuneration after allowing in the payroll for a reduction of either 80% or 20% as a provision to make provision for business travel expenses on assessment if the company car is used for business travel.
The final reduction of the income cash value for business travel expenses is done at the end of the year in the assessment process (described in a section below) before income tax is calculated.
Taxable Fringe Benefit
When an employer (or an associated institution in relation to the employer) grants an employee (or a relative of the employee), the right to use a motor vehicle for private travel, a taxable fringe benefit must be calculated in the payroll, reduced in value if the employee pays the employer a consideration for the private use.
Private Travel
Private travel has been discussed in detail in Chapter 2 and besides stating that the Seventh Schedule ‘defines’ private travel to be the travel between the employee’s ‘place of residence’ and the ‘place of employment’, the principles are not repeated here.
There is one exception to the ‘private travel’ definition that only applies to company cars (it does not apply to travel allowances and travel reimbursements).
If the employee is a “Constitutional Court judge” or a “judge”, their travel between their home and the court over which they preside is deemed to be business travel if a state-owned vehicle is used for the travel.
Value of the taxable benefit
The cash equivalent value of the taxable benefit is calculated in one of two ways:
1. Where the vehicle is owned by the employer, the income value of the fringe benefit is equal to:

Fixed percentage per month x the determined value of the motor vehicle

2. If the vehicle is rented via an “operating lease”, the income value of the fringe benefit is equal to:

Actual cost incurred under the operating lease plus the cost of fuel incurred on the same vehicle

The cash value of the fringe benefit can be reduced by any consideration paid by the employee to the employer (excluding any consideration paid for the cost of licences, insurance, maintenance, or fuel).
For interests’ sake, one of the fundamental differences between a travel allowance and a company car, is that the value of the travel allowance that is taxed in the payroll is to a very limited extent, subject to the employer’s discretion, while the employer cannot fiddle with the value of the company car without being non-compliant.
3.4 Fringe Benefit Formula: Fixed Percentage pm x Determined value
The components of the fixed percentage formula for the calculation of the fringe benefit value for company-owned vehicles are now discussed in more detail:

“Fixed percentage per month x the determined value of the motor vehicle “

The ‘Fixed percentage’
The default value of the ‘fixed percentage’ is 3,5% per month. It can be reduced to 3,25% if the motor vehicle:
“… was the subject of a maintenance plan when it was acquired by the employer”.
Firstly, a ‘service plan’ is not a ‘maintenance plan’ and if there is a service plan, the fixed percentage is 3,5% pm.
A maintenance plan:
1. Is a contractual obligation undertaken by the provider in the ordinary course of trade with the public
2. Underwrites the costs of all maintenance (other than top-up fluids, tyres, or abuse of the motor vehicle)
3. Must be for or a period of at least three years or a distance of 60 000 kilometres, whichever comes first.
Secondly, it is important to note the following:
1. The maintenance plan must commence at the same time that the motor vehicle is bought by the employer. If the maintenance is either a ‘top up’ or an ‘add-on’ plan, then the vehicle is not the subject of a maintenance plan when the vehicle was acquired, and the monthly rate of 3,5% must be used.

2. However, once a valid maintenance plan expires, the monthly rate of 3,25% that was legally used during the period of the maintenance plan, can continue to be used.
Use of a Company car for Part of a Month
In this context, a ‘month’ is a ‘calendar month’, defined in the Income Tax Act to be any one of the 12 portions into which a calendar year is divided.
The fringe benefit value for the private use of a motor vehicle must be calculated for each month or part of a month during which an employee was entitled to use the motor vehicle for private purposes.
If the employee was only entitled to use the vehicle for part of a month, the fringe benefit value must be apportioned according to the number of days that the employee was entitled to use the motor vehicle in that month
This means that if an employee is only granted the right to use a motor vehicle for the first time in the middle of a month (for example, 15 June), the fringe benefit value must be apportioned by dividing it by 30 days (for June) and multiplying by 15 days of entitlement to use the vehicle.
However, the fringe benefit value may not be reduced if, for whatever reason, an employee who is entitled to use the vehicle but does not use the motor vehicle for private purposes for a temporary period, unless the vehicle is returned to the employer so that its use can be allocated to another employee.
Employee is granted the Use of more than one Company car
If the use of more than one vehicle is granted at the same time to an employee, and each vehicle is used primarily (mainly) for business purposes, then the highest fringe benefit value is used for all of the vehicles.
Note that a logbook must be maintained for each vehicle to substantiate that each vehicle is used primarily for business use (i.e., more than 50% of the total distance travelled with each vehicle is business use).
If each vehicle is not used primarily (mainly) for business purposes, then the use of that vehicle is taxed as normal as though it is used for private travel purposes.
Use of the same Company car by more than one Employee
When an employer grants the right of use of a motor vehicle to an employee, the result is that a taxable fringe benefit must be raised for the private travel use.
If the employer grants the right of use of the same vehicle to more than one employee, then in principle both employees are subject to fringe benefit tax on the full value of the vehicle.
One then questions the maintenance of a logbook and the claim for business travel expenses on assessment.
My opinion is that because both employees were taxed in full, that both employees can claim business travel expenses on assessment, but those expenses must only be in respect of each individual employee’s business travel.
Sounds complicated.
3.5 Determined value
Background
Going back to pre-2014, investigations revealed that certain types of companies were benefiting from a lower determined value than the mainstream of companies, resulting in a lower private use fringe benefit value. This was unfair – two employees with identical cars should not have different fringe benefit values.
Before 2015, the types of companies that benefited from a lower determined value than other companies, were:
1. Motor vehicle manufacturers: Determined value = manufactured cost
2. Importers of Vehicle: Determined value = landed cost
3. Motor Dealers: Determined value = Dealer Billing Price
4. Rental companies: Determined value = Dealer Billing Price
The ‘Dealer Billing Price’ is the manufacturers or importer’s recommended selling price of motor vehicles when they sell their vehicles to motor vehicle dealers and rental companies. This is a much lower price than what a customer will pay when purchasing the vehicle from a Motor Dealer (the retail market value).
Amendments 1 March 2015 and the Regulation for Retail Market Value
Paragraphs 7(1)(a), 7(1)(b)(i), 7(1)(b)(ii), and 7(1)(c) of the Seventh Schedule define four methods of acquiring ownership of a motor vehicle, summarised as follows —
1. Acquired (paragraph 7(1)(a)):
Acquired by the employer as a result of a cash purchase
2. Current Lease (paragraph 7(1)(b)(i)):
Is held by the employer under an on-going financial lease
3. Paid-up Lease (paragraph 7(1)(b)(ii)):
Was held by the employer under a financial lease (ownership acquired on termination of the lease)
4. In any other case (paragraph 7(1)(c)):
The vehicle was not purchased but sponsored or donated to the employer at ‘no value’ by another person.
Paragraphs 7(1)(a) and (c) were amended with effect 1 March 2025 to add the concept of the “retail market value” of the vehicle that from 1 March 2025 must be used as the determined value of the acquisition of a motor vehicle.
The regulation that specifies how to determine the retail market value of a motor vehicle was published in Government Gazette No. 38744 on 28th April 2015 and was made retrospectively effective from 1st March 2015.
Its provisions were phased in over 3 years, ending with the final position on 1 March 2018 that is still in force today.
The following table summarises the four methods of acquisition of a motor vehicle and shows the two methods where the retail market value must be calculated according to the rules of the regulation.

Paragraph Reference (Seventh Schedule) Method of Acquisition of a Motor Vehicle Retail Market Value Determined By
1 Paragraph 7(1)(a) Cash purchase The regulation
2 Paragraph 7(1)(b)(i) Financial lease (current) The lease’s ‘cash value’
3 Paragraph 7(1)(b)(ii) Financial lease (paid-up) The lease’s ‘cash value’
4 Paragraph 7(1)(c) ‘No value’ acquisition The regulation
Note that vehicles rented from a bona fide rental company in terms of an ‘operating lease’ specified in section 23A(1) are not affected by the changes to the determined value definition, because as we will see, the ‘determined value’ of the vehicle is not used to calculate the fringe benefit for company cars that are rented by the employer.
Explanation of the Regulation’s Requirements
The rules specified in the regulation that specify a value to the retail market value are complex and provide for a number of scenarios differentiated by —
1. Employer Type:
a. Motor vehicle Manufacturer or Importer
b. Motor vehicle Dealer or Rental company
c. All other employers (who are not one of the above).

2. Vehicle Type:
a. New vehicles
b. Used vehicles.

3. Acquisition Value:
a. Purchased for a Value
b. Acquire at no cost (sponsored, donated, etc.).
Within each of the above scenarios, different sets of rules specify whether VAT must be included or excluded from the retail market value and in a few cases in the years between 2015 and 2017, whether or not to apply a discount percentage.
The table that follows specifies the various scenarios covered by the regulation, as well the rules to be followed for each scenario in order to determine the value of the retail market value correctly.
The rules from 1 March 2015 have been deleted because they are history, and no longer have any value. The rules from 1 March 2018 have been retained in the table because they are still in force today.
Retail Market Value Calculation Table
Employer Category New / Used Regulation Reference Effective From Base Value Plus the Repair Cost VAT
1 Manufacturers and Importers of motor vehicles New 2(a)(i)(dd) 1 Mar 2018 DBP Included
2 Used 2(a)(iii) 1 Mar 2018 COST Included
3 1 Mar 2018 MARKET Yes Included
4 Motor Dealers and motor vehicle Rental companies New 2(b)(ii) 1 Mar 2018 DBP Included
5 Used 2(b)(iv) 1 Mar 2018 COST Included
6 1 Mar 2018 MARKET Yes Included
7 Companies other than the above New 2(c) 1 Mar 2015 COST Included
8 Used 2(c) 1 Mar 2015 COST Included
Explanation of the Abbreviations used in the Table:
1. DBP: Dealer Billing Price (the manufacturer’s recommended selling price to Motor Dealers)
2. COST: Purchase cost of the vehicle Cost including VAT, excluding finance charges and interest
3. MARKET: The Market value including VAT (plus the cost of any repairs).
Finance charges and interest are always excluded from the retail market value and are therefore not indicated in the table.
For companies other than motor vehicle manufacturers, importers, dealers, and rental companies, by applying the regulation rules to the definition of the determined value in the Seventh Schedule paragraph 7(1), the ‘adjusted’ definition of the determined value is as follows (very much simplified):
1. The original cost of the purchase, including VAT, excluding finance charges and interest, or
2. The cash value of an ongoing lease (other than an operating lease), or
3. The cash value of a paid-up lease (other than an operating lease), or
4. In any other case (i.e., not purchased), the market value of the motor vehicle.
The cash value and the market value are relatively straight forward concepts and are not discussed further in this workbook, but the original cost needs some explanation.
Comments on the ‘Original cost’ to the employer
There are some variations to the value of the employer’s ‘original cost’ to be aware of.
Add-on Items
The original cost of the motor vehicle:
• Includes the cost of add-on items such as tow bars, media players, air conditioners, smash-and-grab window tinting and security alarms
• Does not include the cost of insurance products such as the monthly service fee for vehicle tracking or roadside assistance.
Consideration Paid by the Employee
Employees sometimes contribute towards the original cost of a motor vehicle.
For example, employers sometimes place a limit on the cost price of the motor vehicle but allow the employee to select a motor vehicle that exceeds that limit on the basis that the employee contributes the difference between the full cost price of the motor vehicle and the limit set by the employer.
In these circumstances when determining the ‘original cost’, the employer may deduct the employee’s contribution from the full cost price of the motor vehicle.
This means that by contributing financially, the determined value is reduced and the monthly fringe value that the employee is taxed on will be reduced accordingly (less money in the bank, less tax, and the employee drives a more fancy car  ).
Motor Dealers and Motor vehicle Rental companies
It is common practice that employees of dealers in new and used motor vehicles and employees of employers in the motor vehicle rental industry use several ‘company cars’ from the dealer floor for relatively short periods.
In these circumstances, SARS accept that the cost of the motor vehicle used is equal to the average cost of all stock in trade or rental vehicles on the dealer floor at the end of the immediately preceding year of assessment of the employer as an alternative to determining the actual cost of the particular motor vehicle used during each period.
The method of calculating the average cost must be appropriate to the dealer’s circumstances.
For example, if the dealer sells new and used motor vehicles but employees are only allowed to use used motor vehicles, then the average cost of the used motor vehicles on the floor must be used as the ‘determined value’.
The average cost of a motor vehicle may not be used if a specific employee is granted the right of use of a specific motor vehicle or if the right of use of a motor vehicle has been granted to a specific employee as a reward for performance or a motivational tool.
SARS is also of the view that an employee, who has been granted the right of use of a motor vehicle for a period of time which is not considered to be ‘short’, will have been granted the use of a specific motor vehicle.
It appears that one week is seen to be a ‘short’ period, whereas one month is seen to not be a ‘short’ period.
SARS will consider the facts of each case when deciding whether the period that the employee has the use of a particular motor vehicle is ‘short’.
Depreciation of the Determined Value
The determined value of the motor vehicle can be reduced if the employee is granted the right of use of the motor vehicle 12 months or more after the employer first acquired the motor vehicle or the right of use thereof.
The reduction is by means of a depreciation allowance of 15% according to the reducing-balance method for each completed 12-month period from the date the employer acquired the motor vehicle.
The determined value of a company car can be depreciated according to specific rules.
The depreciation is calculated according to the reducing balance method at 15% for each completed 12 period between:
1. The date when the employer first acquired the vehicle or obtained the use of the vehicle, and
2. The date that the employee was first granted the right of use of the vehicle.
Note the importance of the word “first” when applying the depreciation calculation.
For example:
• A vehicle with a determined value of R228 000 was purchased by the employer on 1st January 2007
• The use of the vehicle was first granted to employee A on that date (1st January 2007)
• Thirty months later, the use was granted to employee B on 1st July 2009
• Twelve months later, the use was granted back to employee A on 1st July 2010.
The depreciation calculation is illustrated in the following table.
Table: Company Car Depreciation of the Determined value
DEPRECIATION CALCULATION DETERMINED VALUE REDUCED BALANCE
Employee A given the use of the vehicle on 1st January 2007 R228 000
• Value reduced by 15% of R228 000 = R34 200 on 1st January 2008 R193 800
• Value reduced by 15% of R193 800 = R29 070 on 1st January 2009 R164 730
Employee B given the use of the vehicle on 1st July 2009 R164 730
• Value reduced by 15% of R164 730 = R24 709,50 on 1st July 2009 R140 020,50
Employee A given the use of the vehicle on 1st July 2010 R228,000
The determined value for employee A will be depreciated twice at the start of each year on the anniversary date of when the use of the vehicle was first granted.
The depreciated determined value of R164 730 after 24 months of ownership by the employer will be applied as the determined value when employee B is granted the use of the vehicle (only full 12-month periods are allowed to be depreciated).
After a further full 12 months, the use of the car is granted back to employee A. The determined value then reverts back to R228 000 (the determined value when the use was first granted to employee A).
The important part of the depreciation calculation to be aware of is that the determined value can only be depreciated when the use of the car is moved from one employee to another.
Note that the value of the initial determined value including VAT is depreciated.
3.6 Fringe Benefit Formula: Monthly Cost plus the Cost of fuel
The number of vehicles held by employers under “operating leases” (rented) has increased.
An “operating lease” is used for moveable property (such as a motor vehicle) and its identifying elements are explained in an earlier section of this workbook, so need not be repeated.
If the vehicle is rented via an “operating lease” and the right to use the vehicle for private travel is granted to an employee, the income value of the fringe benefit is calculated as the:

“Actual cost incurred under the operating lease plus the cost of fuel incurred on the same vehicle”.

Note the following:
1. The fringe benefit calculation formula is based on the premise that the vehicle will be used for only private travel purposes, and that by arrangement, the rental company and the employer pay for all running costs
2. The cash value of the fringe benefit can be reduced by any consideration paid by the employee to the employer (excluding any consideration paid for the cost of licences, insurance, maintenance, or fuel).
3. In circumstances where the vehicle is not rented via an “operating lease, the ‘Fixed percentage’ formula must be used to calculate the value of the private use.