Company Car – Fringe Benefit Determination Process

Company Car – Fringe Benefit Determination Process

Payroll / eTorQue

If the company is providing a company financed vehicle to an employee for business and private use please follow the attached decision-making process:

Step 1
Is the vehicle acquired under an operating or finance lease?

If it is an operating lease then proceed to step 2. If it is a finance lease then proceed to step 3.

Step 2 – Operating Lease
If you believe it to be an operating lease can you confirm that it meets the following requirements:

  • 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);
  • The vehicle must be available to lease to the general public for a period of less than a month;
  • 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
  • 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.

If the vehicle is confirmed to have been acquired under an operating lease (rental) the fringe benefit is based on the monthly rental and fuel cost to the employer.

Step 3 – Finance Lease
If the lease is a finance lease the fringe benefit will be calculated as follows:

  • Company to supply the ‘determined value’ of such vehicle. This value is the retail market value including VAT (but excluding finance charges and interest)
  • On a monthly basis, the employee having right of use of such vehicle will be taxed as follows:
    • ‘Determined value’ x 3.5% x 80% where the vehicle is not acquired with a maintenance plan (and the monthly business travel undertaken is less than 80% of the total travel. 20% is applied where the monthly business travel exceeds 80% of the total travel).
    • ‘Determine value’ x 3.25% x 80% (or 20% where business travel exceeds 80% of the total travel) where the vehicle is acquired with a maintenance plan.

In both cases the calculated fringe benefit is reduced by any consideration paid by the employee towards the cost of the vehicle.

Please note that to determine what method to use in calculating the taxable fringe benefit for the car you must first check whether the lease agreement is an operating or a finance lease. The rentals plus petrol method is only used for operating leases. For finance leases the retail market value at the time the employer obtained the vehicle must be used.

Please contact your payroll team or [email protected] for further information in this regard.