How is a company car taxed in South Africa?

As a fringe benefit (right of use of motor vehicle). Each month, 3.5% of the determined value of the vehicle is added to the employee's remuneration and PAYE is withheld on it. If the vehicle is on a maintenance plan, the rate drops to 3.25%. At year end, an ITR12 logbook reconciliation can refund a portion based on private vs business use.

What is the 'determined value' of a company car?

For a vehicle the employer purchased outright, it's the original cash cost (including VAT) when the vehicle was acquired. For a leased vehicle, it's the retail market value at the start of the lease. The value doesn't depreciate over time for fringe-benefit purposes — a 5-year-old car is taxed on the same value as on day one.

Can I reduce the company-car tax with a logbook?

Yes — keep a SARS-compliant logbook all year (date, opening / closing odometer, kilometres, reason). On your ITR12, you claim a deduction for the business-use portion of the fringe benefit, plus any costs you personally paid for fuel, insurance, and maintenance. Without a logbook, no reduction is allowed and the full 3.5% / 3.25% sticks.

Is a company car better than a travel allowance?

Usually no, for the employee. The fringe-benefit calculation taxes 3.5% of the original purchase price each month regardless of how much the car is actually used privately, and the value never declines. A travel allowance with a good logbook, or reimbursive travel, almost always produces a better take-home outcome unless the employee genuinely uses the vehicle ~100% for business.

Company car fringe benefit · invoicebook.co.za

The short version

If your employer buys a car and lets you use it (including for personal trips), SARS treats that as the "right of use of a motor vehicle" — a fringe benefit on your payslip every month. The value: 3.5% of the determined value of the vehicle per month (or 3.25% if the car is on a maintenance plan). That figure is added to your remuneration, PAYE is withheld on it, and you pay tax monthly on the assumption that the car is 100% for private use. A logbook lets you claw back the business-use portion at year-end.

The determined value

The "determined value" is the number you multiply by 3.5%. It's set at the moment the employer acquires the vehicle and stays fixed for fringe-benefit purposes — there's no depreciation. Specifically:

Outright purchase: the original cash cost including VAT.
Lease (operating or finance): the retail market value at the start of the lease.
Manufactured for own use: the cost of manufacture.

So a R600,000 car has a fringe benefit of R21,000 per month (3.5% × R600,000) added to the employee's payslip — every month for as long as they have the car. If the car is on a manufacturer's maintenance plan covering services, parts, and oil for at least 3 years or 60,000 km, the rate drops to 3.25% and the monthly add-on is R19,500.

What this costs in PAYE

An R21,000 monthly fringe benefit isn't taxed in isolation — it's added to the employee's other remuneration and pushed up the marginal tax bracket. For an employee already earning R600,000 a year (so on the 36% marginal bracket), an additional R21,000/month means an extra ~R7,560/month in PAYE. Per year, that's around R90,000 of tax just for the privilege of a company car. The car has to be worth that to the employer's compensation package.

The logbook reconciliation

You don't get away from the monthly hit, but you can recover the business-use portion at year-end. On your ITR12, the rules let you reduce the taxable fringe benefit by the proportion of business kilometres in your logbook. So if your year's driving works out to 25,000 km total of which 18,000 was business (72%), you can claim a deduction reducing the taxable fringe benefit to 28% of what was withheld during the year.

You can also claim, against the fringe benefit, a deduction for any motor expenses you personally paid — fuel for business trips, parking on business trips, insurance excess if you paid it, etc. Expenses paid by the employer don't count (the employer already absorbed those).

Without a logbook, no reduction is allowed and the full year's PAYE on the 3.5%/3.25% sticks.

Logbook requirements

SARS-compliant means contemporaneous records of:

Date of every business trip
Opening and closing odometer reading
Kilometres travelled
Destination and business reason for the trip

For company-car logbooks, total annual opening and closing odometer also needs to be recorded — the percentage business use is calculated as business km ÷ (closing − opening odometer for the tax year).

When a company car is a good deal

Realistically, a company car only beats a travel allowance or reimbursive travel when:

The vehicle is genuinely used 90%+ for business (sales rep covering a region, service tech on call)
The employer is willing to absorb running costs (fuel card, maintenance, insurance) so it's a meaningful net benefit despite the tax
The employee is in a low marginal bracket (so the PAYE hit is smaller)
The car has high resale or signal value (a senior exec driving a flagship vehicle)

For most employees doing mixed business and private travel, a properly-managed travel allowance or, better still, reimbursive travel at the SARS rate produces a better take-home outcome.

Practical takeaway

Run the numbers before accepting a company-car package. The 3.5% per month sounds small until you compound it over a year — R252,000 of taxable fringe benefit on a R600,000 vehicle. Keep a logbook from day one (it's the only mechanism to reduce the bill), and if you genuinely don't need a car for work, take cash equivalent and either get reimbursive travel or buy your own vehicle.