4. Fringe Benefit Formula: Fixed Percentage per month 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:
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 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.