Company car tax explained

The monthly taxable value

The fringe benefit is a percentage of the car’s determined value:

• 3.5% a month of the determined value, or
• 3.25% a month if the car was bought with a maintenance plan of at least 3 years or 60 000 km.

The determined value is what the employer paid for the car in an arm’s-length purchase, including VAT and any accessories bought with it, but excluding finance charges and interest. If you only get the car a year or more after the employer bought it, the value is reduced by 15% (on the reducing balance) for each full year the employer owned it first. For a part month the benefit is apportioned by days.

How much PAYE your employer deducts

Each month your employer adds 80% of the taxable value to your pay for PAYE. If the employer is satisfied that at least 80% of your driving will be for business, it may add only 20%. This only sets the monthly withholding; the final tax is worked out on assessment.

A worked example

The car cost your employer R 500 000 including VAT, with no maintenance plan, and your other taxable income is R 700 000.

• Monthly taxable value: 3.5% × R 500 000 = R 17 500 (R 210 000 a year).
• PAYE is withheld on 80%: R 14 000 a month (R 168 000 a year), adding R 65 520 of tax at your 39% marginal rate.
• With a 5-year maintenance plan the value would be 3.25%: R 16 250 a month.

On assessment you show from your logbook that 16 000 of the 40 000 km you drove in the year (40%) were for business. The R 210 000 is reduced by 40% to R 126 000. Tax on that is R 49 140, so you would get about R 16 380 back.

Reductions on assessment

When you file your return, the annual value can be reduced for:

• Business travel: the value is reduced by the ratio of business kilometres to total kilometres. You need accurate records, normally a logbook with dates, destinations, the reason for each trip and odometer readings. Travel between home and work is private.
• Costs you pay yourself: if you pay 100% of the licence, insurance or maintenance yourself for the year, with no reimbursement, the value is reduced by that cost × your private km ÷ total km. Paying only part of a cost gives no reduction. If you pay for all the fuel for private use, the reduction is your private kilometres × the fuel cost per km in the official cost table. Both reductions need records of your private kilometres.

The reductions can bring the value down to nil but not below. Different rules apply to leased cars (below).

Leased cars

If the employer rents the car under an arm’s-length operating lease, the taxable value is the actual lease cost plus the cost of fuel, instead of 3.5%. Reductions for costs you pay yourself don’t apply.

When there is no taxable benefit

• Pool cars: the car is available to and actually used by employees generally, private use is only occasional or incidental, and it is not normally kept at or near an employee’s home overnight. All three must be true.
• After-hours duty: your work regularly requires you to use the car outside normal hours, and private use is only travel between home and work, or occasional.

Company car or travel allowance?

With a travel allowance you own the car and claim business kilometres against the allowance, using the SARS cost table. The same 80%/20% rule applies to PAYE on the allowance. A company car usually suits people who drive a lot for work in an expensive car; an allowance suits people who want to choose and own their car. Compare with the travel allowance guide.

Electric and hybrid cars

There is no separate rate for electric cars: the 3.5% or 3.25% rule applies to the determined value, which is often higher for an EV. Whether home charging counts as “fuel” for the reduction is not clearly settled, so keep records and ask a tax practitioner.

Frequently asked questions

How is a company car taxed in South Africa?

3.5% of its determined value a month is a taxable fringe benefit (3.25% with a maintenance plan). PAYE is withheld on 80% of it, or 20% if business use is at least 80%.

Do I need a logbook for a company car?

Only if you want the value reduced for business travel on assessment. Without records, SARS taxes the full value.

Is the determined value including VAT?

Yes, it is the employer’s cost including VAT, but excluding finance charges and interest.

Does home-to-work travel count as business?

No. Travel between your home and your normal place of work is private.

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