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.
The use of a company car for private travel results in a taxable fringe benefit that is included in the employee’s 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 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
The Seventh Schedule ‘defines’ private travel to be the travel between the employee’s ‘place of residence’ and the ‘place of employment’.
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).
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.
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 of the Income tax act. 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.
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 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.
The document contains detailed classifications of industries according to the Standard Industrial Classification (SIC7) codes. These codes cover a wide range of sectors, providing specific descriptions for each industry.
Appendix C: SIC7 Codes
Other Service Activities
94110: Activities of business and employers’ membership organizations
94120: Activities of professional membership organizations
94200: Activities of trade unions
94910: Activities of religious organizations
94920: Activities of political organizations
94990: Activities of other membership organizations n.e.c.
95110: Repair of computers and peripheral equipment
95120: Repair of communication equipment
95210: Repair of consumer electronics
95220: Repair of household appliances and home and garden equipment
95230: Repair of footwear and leather goods
95240: Repair of furniture and home furnishings
95290: Repair of other personal and household goods
96010: Washing and (dry-) cleaning of textile- and fur products
96021: Hairdressing
96022: Beauty treatment
96030: Funeral and related activities
96090: Other personal service activities n.e.c.
97000: Activities of households as employers of domestic personnel
98100: Undifferentiated goods-producing activities of private households for own use
98200: Undifferentiated service-producing activities of private households for own use
99011: Activities of extraterritorial organizations and bodies
99012: Representatives of foreign countries
99013: Not economically active people, beggars, people living from handouts and charity, etc.
99014: Unemployed people, people seeking work, etc.
The document contains detailed classifications of industries according to the Standard Industrial Classification (SIC7) codes. These codes cover a wide range of sectors, providing specific descriptions for each industry.
Appendix C: SIC7 Codes
Arts, Entertainment, and Recreation
90000: Creative arts and entertainment activities
91010: Library and archives activities
91020: Museums activities and operation of historical sites and buildings
91030: Botanical and zoological gardens and nature reserves activities
92000: Gambling and betting activities
93110: Operation of sports facilities
93120: Activities of sports clubs
93190: Other sports activities
93210: Activities of amusement parks and theme parks
93290: Other amusement and recreation activities n.e.c.
The document contains detailed classifications of industries according to the Standard Industrial Classification (SIC7) codes. These codes cover a wide range of sectors, providing specific descriptions for each industry.
Appendix C: SIC7 Codes
Human Health and Social Work Activities
86100: Hospital activities
86201: Medical practitioner- and specialist activities
86202: Dentist and specialist dentist activities
86209: Other medical and dental practice activities
86900: Other human health activities
87100: Residential nursing care facilities
87200: Residential care activities for mental retardation, mental health, and substance abuse
87300: Residential care activities for the elderly and disabled
87900: Other residential care activities
88100: Social work activities without accommodation for the elderly and disabled
88900: Other social work activities without accommodation
The document contains detailed classifications of industries according to the Standard Industrial Classification (SIC7) codes. These codes cover a wide range of sectors, providing specific descriptions for each industry.
Appendix C: SIC7 Codes
Education
85101: Pre-primary education and activities of after-school centers
85102: Primary education
85210: General secondary education
85220: Technical and vocational secondary education
85300: Higher education
85410: Sports and recreation education
85420: Cultural education
85490: Other education n.e.c.
85500: Educational support activities
The document contains detailed classifications of industries according to the Standard Industrial Classification (SIC7) codes. These codes cover a wide range of sectors, providing specific descriptions for each industry.
Appendix C: SIC7 Codes
Public Administration and Defense; Compulsory Social Security
84111: General public administration at National Government level
84112: General public administration at Provincial Government level
84113: General public administration at Local Government level
84121: Regulation of the activities of providing health care, education, cultural services, and other social services excluding social security at National Government level
84122: Regulation of the activities of providing health care, education, cultural services, and other social services excluding social security at Provincial Government level
84123: Regulation of the activities of providing health care, education, cultural services, and other social services excluding social security at Local Government level
84131: Regulation of and contribution to more efficient operation of businesses at National Government level
84132: Regulation of and contribution to more efficient operation of businesses at Provincial Government level
84133: Regulation of and contribution to more efficient operation of businesses at Local Government level
84140: Extra budgetary account n.e.c.
84210: Foreign affairs
84220: Defense activities
84231: Public order and safety activities at National Government level
84232: Public order and safety activities at Provincial Government level
84233: Public order and safety activities at Local Government level
84300: Compulsory social security activities
The document contains detailed classifications of industries according to the Standard Industrial Classification (SIC7) codes. These codes cover a wide range of sectors, providing specific descriptions for each industry.
Appendix C: SIC7 Codes
Administrative and Support Service Activities
77100: Renting and leasing of motor vehicles (without driver)
77210: Renting and leasing of recreational and sports goods
77220: Renting of video tapes and disks
77290: Renting and leasing of other personal and household goods
77301: Renting of land transport equipment
77302: Renting of water transport equipment
77303: Renting of air transport equipment
77304: Renting of agricultural machinery and equipment
77305: Renting of construction and civil engineering machinery and equipment
77306: Renting of office machinery and equipment
77309: Renting and leasing of other machinery, equipment, and tangible goods n.e.c.
77400: Leasing of intellectual property and similar products except copyrighted works
78100: Activities of employment placement agencies
78200: Temporary employment agency activities
78300: Other human resources provision
79110: Travel agency activities
79120: Tour operator activities
79900: Other reservation service and related activities
80100: Private security activities
80200: Security systems service activities
80300: Investigation activities
81100: Combined facilities support activities
81210: General cleaning of buildings
81290: Other building and industrial cleaning activities
81300: Landscape care and maintenance service activities
82110: Combined office administrative service activities
82190: Photocopying, document preparation, and other specialized office support activities
82200: Activities of call centers
82300: Organization of conventions and trade shows
82910: Activities of collection agencies and credit bureaus
82920: Packaging activities
82990: Other business support service activities n.e.c.
The document contains detailed classifications of industries according to the Standard Industrial Classification (SIC7) codes. These codes cover a wide range of sectors, providing specific descriptions for each industry.
Appendix C: SIC7 Codes
Professional, Scientific, and Technical Activities
69100: Legal activities
69201: Accounting and bookkeeping activities
69202: Auditing activities
69209: Other accounting, bookkeeping, and auditing activities; tax consultancy
70100: Activities of head offices
70200: Management consultancy activities
71101: Consulting engineering activities
71102: Architectural activities
71103: Activities of quantity surveyors
71104: Activities of land surveyors
71105: Geological and prospecting activities on a fee or contract basis
71106: Activities of non-registered architects e.g., tracers and draughtsmen
71109: Other architectural and engineering activities and related technical consultancy
71200: Technical testing and analysis
72100: Research and experimental development on natural sciences and engineering
72200: Research and experimental development on social sciences and humanities
73100: Advertising
73200: Market research and public opinion polling
74100: Specialized design activities
74200: Photographic activities
74900: Other professional, scientific, and technical activities n.e.c.
75000: Veterinary activities
