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CAR ALLOWANCE VS COMPANY CAR (1)
Without a doubt, the million dollar question. More
and more companies are offering their employees a
car allowance instead of the traditional company car.
It is, however, important to fully understand the
tax implications of both the car allowance and company
car options, and the best way of arriving at an answer
is
through a perks tax calculation.
Before making a decision, a number of very important
factors must be considered i.e.
- Total annual distance travelled.
- Total annual business distance travelled.
- Depreciation of the vehicle.
- Total running cost.
- Ownership vs. usage
Car Allowance Tax
Under the income tax act the difference between the
allowance amount received by you and the amount spent
on business travel is taxable as income.
Car allowance tax less business travel costs = taxable
income.
PAYE is calculated monthly on 60 per cent of the allowance
paid to you at your marginal rate. At the end of the
tax year the actual amount due is determined and adjusted
by deducting the monthly tax paid.
As a car allowance user, you have the option to calculate
your allowance tax in one of four ways:
| Option 1: |
By keeping accurate
records of both vehicle expenses and business
kilometres travelled. |
| Option 2: |
By keeping accurate
records of vehicle expenses and no record of kilometres
travelled. |
| Option 3:
|
By keeping accurate
records of kilometres travelled and no record
of vehicle expenses. |
| Option 4: |
By keeping no records
of vehicle expenses and no record of kilometres
travelled. |
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