11. SARS ‘Cost Scale’ Table and Prescribed Rate
This section explains the principles of the SARS ‘Cost Scale’ table and the ‘Prescribed’ rate/km.
Principles
Legislation requires any travel compensation paid or granted in respect of private travel to be taxed. However, before it can be taxed, the private travel portion of the compensation must have an income and a remuneration value for the respective tax calculations.
The Cost Scale table is not used for company car calculations. Company cars have their own special rules that must be used to calculate the fringe benefit value for the private use of the company car.
For travel allowance and travel reimbursement calculations, SARS provide the ‘Cost Scale’ table from which a ‘Cost Scale’ rate/km for the car used for the business travel can be determined, as well as an alternative ‘Prescribed’ rate/km.
The employer can choose one of these two rates to use to estimate the value of a travel allowance or to calculate the actual value of a travel reimbursement.
In recent years, SARS adjust the “Cost Scale” table and the Prescribed rate regularly every year for inflation and issue them in a regulation to assist employers.
The latest regulation with the ‘Cost Scale’ table and the Prescribed rate for the 2023/24 tax year was issued on 3 March 2023 in Government Gazette No. 48162 with the following title:
‘Fixing of Rate per Kilometre in Respect of Motor Vehicles for the Purposes of Sections 8(1)(b)(ii) and (iii) of the Income Tax Act, 1962’.
The ‘Cost Scale’ table returns a determined rate per kilometre for a motor vehicle based on its ‘Determined value’ that takes both capital and running costs into account.
The importance of the ‘Cost Scale’ table lies in the word ‘cost’. Cost reduces tax. Using the SARS Cost Scale table correctly results in a rate per kilometer that has a cost value that is acceptable to SARS.
The ‘Cost Scale’ table is structured as follows:
1. The first column of the table specifies the brackets for the determined value of the vehicle and is used to position the vehicle on the correct line in the table.
2. The second column of the table contains a “fixed cost” value for the vehicle that provides for finance charges, insurance, depreciation, and licensing. The rand value of the fixed cost must be divided by the total kilometres (private plus business) that are expected to be travelled in the tax year ahead to give a ‘Fixed cost’ rate/km
3. The third column of the table specifies the fuel cost as a rate per kilometer
4. The fourth column of the table specifies the maintenance costs as a rate per kilometer
5. The total ‘Cost Scale’ rate per kilometer is calculated by adding the above three rates together.
6. The ‘Cost Scale’ table is limited to a motor vehicle with a determined value of R800 000 for the 2024 tax year. This means that motor vehicles with a determined value higher than R800 000, will have the same determined rate/km as a motor vehicle of R800 000.
Note the following regarding the ‘Prescribed’ rate per kilometer:
1. The 2023/24 Prescribed rate/km has been increased by 11,0% from R4,18 to R4,64 per kilometer.
2. The Prescribed rate/km includes the Fixed, Fuel, and Maintenance cost elements and represents a fair value for a car of ‘average’ determined value that travels an ‘average’ total number of kilometers per year
3. It is a safe (i.e., no risk to the employer) option that employers should seriously consider using when estimating travel allowance amounts and for the calculation of travel reimbursement claims.
4. Employers that prefer not to use the Prescribed rate per kilometer, must use the ‘Cost Scale’ table to determine a rate/km that is based on the determined value of the privately-owned vehicle that is used to the estimate a travel allowance amount, and for the calculation of a travel reimbursement.
5. On assessment, SARS use the same ‘Cost Scale’ table and the kilometers declared in the logbook to determine the ‘cost’ rate/km that will be used to calculate the value of the business travel deduction expense.