If your job requires you to travel, your employer might offer you a "company car" or a "travel allowance." They sound similar, but their tax implications are completely different.
One is a cash allowance that you must claim against. The other is a fringe benefit that you pay tax on. Choosing the wrong one can cost you thousands in tax.
Here’s the breakdown to help you decide.
Option 1: The Travel Allowance (Source Code 3701)
This is the most common option. Your employer adds a fixed amount (e.g., R5,000) to your monthly salary, which is intended to cover the costs of using your own car for business.
- How it's Taxed Upfront: Your employer is required to add 80% of your allowance to your salary for PAYE purposes. (This drops to 20% only if your employer is satisfied you travel more than 80% for business).
- The Catch: You MUST keep a detailed, accurate logbook of all business kilometres travelled.
- How You Claim: At tax season, you use your logbook to claim a deduction against this allowance. You can claim based on:
- SARS Deemed Costs: A fixed rate per kilometre (based on your car's value) that SARS provides.
- Actual Costs: You track every single rand spent on fuel, oil, maintenance, insurance, and wear-and-tear, and then claim the business portion.
- The Result:
- If your claim (based on your logbook) is higher than the taxable portion of your allowance, you get a tax refund.
- If your claim is lower (or you have no logbook), you will owe SARS more tax.
Best for: People who travel a lot for business and are disciplined enough to keep a perfect logbook.
Option 2: The Company Car (Source Code 3802)
This is the "simpler" option. Your employer provides you with a car that they own or lease. You get to use it for both business and private travel.
- How it's Taxed Upfront: This is a "fringe benefit." SARS assumes you are using the car for private travel, so they tax you on it.
- The Calculation: A fixed value of 3.5% of the car's "determined value" (the original purchase price including VAT) is added to your taxable income every month.
- (This drops to 3.25% if the car comes with a maintenance plan).
- Example: Your employer gives you a car worth R400,000 (incl. VAT).
- The monthly fringe benefit is: R400,000 x 3.5% = R14,000.
- This R14,000 is added to your salary for tax purposes each month. You are taxed as if your salary was R14,000 higher.
- How You Claim: The only way to reduce this high tax is to... you guessed it... keep a logbook. By proving your business kilometres, you can reduce the 3.5% fringe benefit on your final tax return.
Best for: People who want a new car with no admin, have high private mileage, and are not concerned about paying the high fringe benefit tax
The Golden Rule: The Logbook is Everything
In both scenarios, the logbook is the key to tax efficiency.
- With an allowance, a logbook gets you a refund.
- With a company car, a logbook reduces the tax you pay.
