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Car Allowance Perks

In spite of restrictions, allowances still offer tax efficiency

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A few years back car allowances offered huge benefits for various occupation and income groups. Many people switched to car allowances for improved tax efficiency as the tables which were the basis of your claim were very liberal when compared to actual running costs. Only 10 000 kilometres were deemed to be private travel and the allowance was not subject to PAYE.

The South African Revenue Service then started stepping in with measures to control the exploitation of car allowances.

They started with the introduction of partial taxation, whereby a portion became subject to PAYE and gradually increased it to a level where currently 60% of the allowance is subject to PAYE.

At the same time they gradually increased the level of deemed private travel and currently this is pegged at 18 000 kilometres per annum with a ceiling of 32 000 kilometres.

If however you are a high mileage user you can claim the full actual business travelled irrespective of the constraints of the deemed private kilometres, provided an accurate log book is kept.

SARS is also focusing its attention on the recipients of car allowances and whether an allowance is justified. Due to the fact that commuting between home and office is considered private travel and the car allowance is not justified, the burden is now being passed onto the employer as they may be exposing themselves to penalties by the South African Revenue Services for under deduction of PAYE.

Excessive allowances in relation to position are also being put under the spotlight. Some 20%-25% of your total remuneration package would be considered reasonable assuming other basic criteria are met. In the case of sales representatives or similar occupations where high business travel figures are the norm this percentage could be increased up to around 30%. However, these standards are relative to the vehicle you drive, your vehicle running costs as well as the number of kilometres travelled annually.

While all these measures have been put in place to prevent exploitation and abuse of car allowances, and after all considerations are taken into account the final answer lies in each individual’s particular circumstances. Doing the calculation noted below assists in helping you answer the question.

1. Determine the amount of kilometres travelled for the year.

This can be done by taking your odometer reading on 1 March from the previous year to 28 February of the current year. If you buy and or sell a vehicle in this period, remember to take note of the odometer readings on the car you sell and the car you buy, for your end and start points. The difference between the two odometer readings is the total travel for the year.

Then determine the portion that relates to business travel. Either keep a log book for all travel excluding your commute to and from work, or if no log book is kept only between 18 001 and 32 000 will be regarded as business travel. The first 18 000 and all travel after 32 000 will be considered private.

2. Determine the running costs of your vehicle.

There are two methods in which you are entitled to determine the running costs incurred during the financial year.

  1. Record actual costs of fuel, services, repairs, tyres, licenses, insurance, parking and tolls as these will be considered normal running costs that can  be claimed. You can claim the finance charge portion of your installment sale or if your vehicle is leased you cannot claim wear and tear, however you are entitled to claim the full monthly payment as a deduction.
  2. Alternatively, use the SARS tables for determining the costs. These tables include a fixed cost which covers wear and tear, insurance, licensing and finance charges, plus a fuel and maintenance cost which is a cents per kilometre rate.

The amount determined by using this method must be apportioned and claimed ONLY for your business travel.

Notes:

  1. If you receive a car allowance, you are entitled to use either method, so a calculation determining the higher deduction would need to be made.
  2. If you earn only commission or are claiming travel expenses against professional or trade income, the claim has to be based on actual costs and the SARS table above cannot be used.

After all the considerations mentioned above as well as the result of the calculation the individual will be able to determine whether the 60% that is subject to PAYE can
be amended.

The Value of the Vehicle Fixed Cost Fuel Costc/km Maintenance Cost c/km
Under R40 000 R15 364 47.3 22.5
R40 001 – R60 000 R20 910 49.4 26.2
R60 001 – R80 000 R25 979 49.4 26.2
R80 001 – R100 000 R31 513 54.8 30.5
R100 001 – R120 000 R36 978 54.8 30.5
R120 001 – R140 000 R41 771 54.8 30.5
R140 001 – R160 000 R47 512 57.2 39.8
R160 001 – R180 000 R52 629 57.2 39.8
R180 001 – R200 000 R58 334 65.9 43.8
R200 001 – R220 000 R64 591 65.9 43.8
R220 001 – R240 000 R69 072 65.9 43.8
R240 001 – R260 000 R74 777 65.9 43.8
R260 001 – R280 000 R79 918 69.3 52.5
R280 001 – R300 000 R85 440 69.3 52.5
R300 001 – R320 000 R88 793 69.3 52.5
R320 001 – R340 000 R95 218 69.3 52.5
Over R340 001 R100 011 77.1 68.0

 

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Tax

7 Direct And Indirect Taxes You Should Consider Before Registering Your Business

Tax planning is critical for us all more so for the success of your newly registered entity.

Kenlin Stride

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If your business has been registered, guess what in the eyes of the law your business is now a legal entity, congratulations. What does this mean? Well this means your business is a distinct legal entity separate from you in the eyes of the law, this means your business can now enter into contracts to purchase assets, utilise debt instruments and hire staff amongst other things. This unfortunately also means your business is subject to tax compliance. Let me try and give you a snapshot of what taxes to be aware of as a business owner however not all will automatically be applicable to your business.

1. Income Tax

Income tax is one of the state’s main sources of revenue and is levied on taxable income determined in terms of the Income Tax Act. All businesses must be registered for Income Tax. It is illegal not to be registered for Income Tax if you have a business.

2. Provisional Tax

The payment of provisional tax is to assist taxpayers in meeting their tax liabilities by way of installments out of their taxable income. Income tax is only paid once the full 12 months of trading is complete. It would be impractical to expect taxpayers to pay one large lump sum of income tax to SARS. Companies automatically fall into the provisional tax system.

Related: Tax Basics For Business Owners

3. Small Business Corporations Tax

SBC Tax was introduced as a tax relief measure for small business. SBC Tax will not be calculated on the flat 28% of taxable income. Dependent on your annual taxable income, you will be liable at the percentages in the table.

4. Pay As You Earn

Employees’ tax refers to the tax required to be deducted by an employer from an employee’s remuneration (salary) paid. The process of deducting or withholding tax from remuneration as it is earned by an employee is commonly referred to as PAYE.

5. Value Added Tax

This is an indirect tax levied on the ‘sale’ and ‘purchase’ of goods and services. This tax is not compulsory unless your turnover has exceeded R 1 000 000 mark however you choose to register voluntarily if it makes sense for your business strategy.

Related: How to Reduce Your Taxable Income

6. Unemployment Insurance Fund

UIF contributions are compulsory for all employees working more than 24 hours a month. The contributions are paid to the Department of Labour (DOL), or can be included in the SARS payment of PAYE on the EMP201

7. Workman’s Compensation

An employer must register with the Commissioner within seven days after the day on which he employs his first employee, (this includes the Director or Owner of the company)

You might be thinking tax compliance, what’s the big deal? I’ve been doing that most of my adult life, well personal tax is very different to business tax. As the director of your newly registered business it is assumed that you have done the research as to what laws to comply with as a business owner. In reality however the thrill of having a business overshadows the mundane compliance elements that go hand in hand when running a business. Let’s face it as much as your business is now a legal entity your business won’t do the research and comply with the necessary taxes on its own that responsibility lies with the director and when I say director I mean you.

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Tax

Tax Refunds – What You Need To Know

You are able to object/dispute any SARS decision not to release the refund on efiling or through your tax practitioner.

Maselaelo Mphela

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Most taxpayers are not aware of the requirements for a tax refund to be facilitated and SARS very often will delay paying out the refund. In this article, we will look at the requirements taxpayers need to be aware of and the Tax Ombud’s report on the investigation into alleged delayed payment of refunds as a systemic and emerging issue in terms of section 16 (1) (b) of The Tax Administration Act No. 28 of 2011 (TAA).

What you need to know as a taxpayer:

  • The tax refund must be claimed within 5 years from date of submission of the return.
  • SARS has the right to withhold the refund as per section 190 (2) of TAA: “SARS need not authorise a refund as referred to in subsection (1) until such time that a verification, inspection or audit of the refund in accordance with Chapter 5 has been finalised.”
  • Authorisation of payment of refund done once SARS is satisfied with the acceptable security provided by the taxpayer in terms of section 190 (3) of TAA: “SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit if security in a form acceptable to a senior SARS official is provided by the taxpayer.”
  • As a taxpayer, you need to ensure that you verify your banking details with SARS and that there are no outstanding returns in order for your refund not to be delayed.
  • Any decision not to refund by SARS is subject to an objection and appeal by the taxpayer in terms of section 190 (6) of TAA.
  • Refunds less than R100 are not refunded but carried forward to the next tax period.
  • To view the status of your refund you can use the Refund Dashboard on efiling under the ‘Returns History’ tab for the tax period in question or contact the SARS call centre.
  • Interest starts accruing from 21 business days from the date on which the refund became due, i.e. verification/audit outcome finalised.

Related: Tax Basics For Business Owners

Tax Ombud’s Report

The Tax Ombud’s report identified various mechanisms used by SARS to defer or delay the payment of refunds due:

  • SARS failing to link submitted supporting documents at a SARS branch to the main file.
  • The use of special stoppers on taxpayers’ accounts and the delay in lifting the stoppers, e.g. being required to verify banking details in person at a SARS branch. Even after the verification is done, there is still a lengthy delay in paying the refund.
  • Using the filing of new returns as an excuse to block refunds. The system blocks already verified refunds the moment a subsequent return is submitted by the taxpayer.
  • Withholding of refunds for one period while an audit/verification is in progress on another period. This is contrary to section 190 of the TAA.
  • The use of historic returns suddenly reflecting as outstanding but these have never been shown as outstanding on the Tax Clearance Certificate or the Statement of Account.
  • The raising of assessments and passing of journals to absorb credits on taxpayers’ accounts, i.e. overpayments. In doing so, SARS creates fictious tax liabilities instead of making a decision on the refund.
  • Requesting further information during the audit to delay finalisation, thus delaying the time frame from when the interest accrues.
  • No turnaround time for assessments successfully disputed.
  • Obstacles regarding diesel refunds.
  • Raising of assessments prematurely before the 21 days to submit the supporting documents
  • Refunds for periods that have been verified automatically set-off against bad debts on other periods not withstanding a request for suspension or where there is the suspension of payment. SARS may not instate any collection steps from date of submission of request for suspension of payment until 10 days after decision to not grant the request has been communicated to the taxpayer in terms of section 164 (6).

You are able to object/dispute any SARS decision not to release the refund on efiling or through your tax practitioner.

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Company Posts

Reimagine The Use Of Technology

The phenomenon of ‘big data’ is rapidly catching up with the world of tax.

PwC

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As tax professionals we live in a new reality, fueled by the blinding pace of change. The digital revolution is here. Reimagine the future of the tax function through the lens of analytics.

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