The number of new and high-value cars on the roads makes it clear that a large proportion of South African car owners are probably using some form of car finance and many are probably also partly supported by tax benefits from their employers.
Several car finance companies were asked to offer solutions to the following types of car user, who are further up the cost and complexity curve than a private user able to offer cash or access bond financing. Thanks are due to Bankfin and Nedfin for coming up with solutions.
Scenario
A middle manager with a car allowance of R2 700 a month who wants to spend the full amount. He expects to do 22 000 kilometres a year of which 8 000 would be business travel.
Solution
Assuming the R2 700 was to cover financing only, both Bankfin and Nedfin suggested the manager buy a vehicle selling for between R103 088 and R111 115, including VAT. Nedfin suggested either an instalment sale or a lease agreement over 48 months at an interest rate of 22 percent nominal annual compounded monthly. There would be no deposit required, monthly repayments would be R2 706 and a balloon payment of R51 660 would be due.
If the R2 700 was intended to include financing, fuel, maintenance and insurance, Nedfin suggests the value of the car that this manager could afford would be R70 025 including VAT. It could be taken on an instalment sale or a lease agreement over 48 months at an interest rate of 22 percent. The balloon payment would be R38 475; there would be no deposit; and the monthly repayment including all running costs would be R2 652.
Scenario
A middle manager with a car allowance or company car option. The car allowance is R2 700 a month but the manager is office bound and will not do more than 14 000 total mileage a year.
Solution
Bankfin advises he should take the company car option by buying a car costing R103 000-R111 000. If he chose the travelling allowance, his employer would deduct tax of R486 a month off the R2 700 allowance, totalling R5 832 for the year. However, the tax due would be R14 578, so he would have to make up the shortfall of R8 746. If he chose a company car, though, he would only have to pay tax of R9 379 for the year.
Scenario
A senior manager with a car allowance of R5 000 a month who expects to do 22 000 kilometres of travel a year, of which 8 000 kilometres would be business.
Solution
If the R5 000 excludes costs of insurance, fuel and maintenance, Bankfin recommends entering into a lease contract over 60 months on a vehicle worth R203 700, with a balloon payment of 20 percent. This will leave a total tax shortfall of R1 381 which he would have to make up at the end of the tax year. If he had a company car option, the tax shortfall on a comparable company car would be R5 194.
Nedfin suggests that, if the R5 000 were to include running costs, this manager buy a car worth R150 480 on an instalment sale or lease agreement over 48 months. With no deposit, and a interest rate of 22 percent, the monthly repayments including running costs would be estimated at R5 003 and the balloon payment would be R67 716.
Scenario
A senior manager, with one company car and an allowance for a second car which he would like to let his wife use.
Solution
In this case the travelling allowance will be taxed as normal - 40 percent will be taxed at his marginal rate every month. At the end of the year the tax authorities will make an assessment of the business usage claimed against the allowance received, resulting in either a shortfall or a refund.
However, the company car will be regarded as a second company car so a higher tax rate than the normal 1,8 percent of value applies. It will instead be taxed at four percent a month on its value.