By Chris Herbst, Chartered Business Accountant in Practice (CBAP) with CIBA, General Tax Practitioner (GTP) with SAIT, Stellenbosch University. Team registered with SAIT, SAIPA and CIBA.
If your employer gives you a company car, your IRP5 shows an amount next to code 3802 and you pay PAYE on it every month. Many employees accept that figure as final. It is not. The value on the IRP5 assumes you used the car only for private travel and that your employer paid every running cost. Your ITR12 is where the business kilometres in your logbook, and the costs you carried yourself, reduce the benefit. This guide explains what code 3802 is, how the benefit is valued, how the reductions work and how to complete the vehicle section on eFiling.
What Is SARS Code 3802 on an IRP5?
Code 3802 is the source code for the taxable benefit of the right of use of a motor vehicle that your employer acquired other than under an operating lease. The SARS guide for codes applicable to employees tax certificates describes it as the taxable benefit in respect of the right of use of a motor vehicle acquired by an employer not under an operating lease, and marks it as subject to PAYE.
What is code 3852?
Code 3852 is the same benefit where it relates to foreign services income. The codes guide states that 3852 is used only for foreign services income. Most South African employees see 3802.
What is code 3816 and how does it differ?
Code 3816 is the benefit for a vehicle your employer holds under an operating lease. The codes guide separates the two: 3802 excludes every vehicle acquired by the employer through an operating lease, and 3816 covers those vehicles. The valuation rules differ, which is why the code matters when you check your assessment.
Why is a company car a taxable benefit at all?
The Seventh Schedule to the Income Tax Act 58 of 1962 treats the right to use an employer's vehicle for private or domestic purposes as a taxable benefit. Private use includes travel between your home and your place of work. The SARS guide for employers in respect of fringe benefits sets this out under paragraphs 2(b) and 7 of the Seventh Schedule.
How Is the Code 3802 Benefit Valued?
The benefit is valued monthly at a fixed percentage of the vehicle's determined value, less anything you pay your employer for the private use of the car. The SARS fringe benefits guide states that the value for each month of private use is 3.5% of the determined value, and 3.25% where a maintenance plan was included in the purchase price when the employer bought the vehicle.
What is the determined value of a company car?
For a vehicle your employer bought, the determined value is the original cost to the employer. The SARS comprehensive guide to the ITR12 sets out the other cases: the retail market value where the employer leases the vehicle other than under an operating lease, and the market value at the time the employer first obtained the vehicle in any other case. For an employer that is not a motor manufacturer, importer, dealer or rental company, the fringe benefits guide uses the price the employer paid to acquire the vehicle, including VAT.
When does the 3.25% rate apply instead of 3.5%?
The lower rate applies only where the vehicle was the subject of a maintenance plan when the employer acquired it. The ITR12 guide adds that the maintenance plan must commence at the same time the employer acquires the vehicle.
Does the determined value drop for an older car?
Yes, where your employer acquired the car 12 months or more before you were given its use. The fringe benefits guide applies a depreciation allowance of 15% for each completed 12-month period, on the reducing balance method, from the date the employer first obtained the vehicle to the date you were granted its use.
What if I pay my employer for using the car?
Amounts you pay your employer for the private use of the vehicle reduce the monthly value. The fringe benefits guide excludes payments for licence, insurance, maintenance or fuel from this reduction; those costs are dealt with separately on assessment, as set out below.
What if I had the car for part of a month?
The fringe benefits guide apportions the monthly value by the number of days you had use of the vehicle against the days in that month.
How Does a Logbook Reduce the 3802 Benefit on Your ITR12?
A logbook reduces the benefit in proportion to your business kilometres. The ITR12 guide sets the business use reduction as the value of private use multiplied by business kilometres divided by total kilometres, and states that the reduction is made on assessment, not by your employer.
What does SARS's own example show?
The ITR12 guide works through a car bought for R300 000 including VAT, with the employee paying R1 000 a month for its use. The monthly value is R9 500 (3.5% of R300 000 less R1 000), or R114 000 for the year. The employee's logbook shows 10 000 business kilometres out of 40 000. The business reduction is R28 500, and the taxable benefit on assessment is R85 500.
What must the logbook show?
The ITR12 guide lists the minimum information: opening and closing kilometres for the year or the period of business use, and for each business trip the date, the destination to and from, the kilometres travelled and the reason for the trip. SARS publishes a logbook free of charge on its website.
Is driving to the office business travel?
No. The ITR12 guide states that travel between your residence and your place of business is private. Those kilometres count in your total, not in your business kilometres.
How long must I keep the logbook?
The ITR12 guide requires you to retain the logbook for five years after the date you submit the return, so that you can produce it if SARS asks for it.
Which Running Costs You Pay Reduce the Benefit?
If you bear the full cost of the licence, insurance or maintenance, or the full cost of fuel for private use, the benefit is reduced further on assessment, provided you kept a logbook. The ITR12 guide states these reductions do not apply to a vehicle held under an operating lease.
How are licence, insurance and maintenance costs reduced?
For each of these, the ITR12 guide calculates the reduction as private kilometres divided by total kilometres, multiplied by the full cost you paid. The maintenance reduction is not allowed where a maintenance plan was included in the purchase price of the vehicle.
How is private fuel reduced?
Where you pay all the fuel for private use, the reduction is your private kilometres multiplied by the fuel rate per kilometre in the Government Gazette notice fixing the rate per kilometre, which SARS publishes on its website. The ITR12 guide's second example applies this to 19 000 private kilometres.
What if my employer reimbursed part of the cost?
The ITR12 guide states that where your employer fully or partially reimburses you for licence, insurance, maintenance or private fuel, you cannot claim a reduction for that item. The return asks you to answer Y or N for each one.
How Does Code 3802 Compare With Other Vehicle Codes?
Code 3802 is one of several codes that deal with travel and vehicles on an IRP5. The table sets out how they differ, using the definitions in the SARS codes guide and the valuation rules in the fringe benefits guide.
- 3802: What it covers: Employer-owned or financed car; How it is valued: 3.5% or 3.25% of determined value a month
- 3816: What it covers: Car under an operating lease; How it is valued: Lease cost plus fuel cost
- 3701: What it covers: Travel allowance for your own car; How it is valued: Full allowance paid to you
- 3852: What it covers: Code 3802 for foreign services income; How it is valued: Same as 3802
Can I have both 3802 and 3701 on my IRP5?
The two cover different arrangements. Code 3701 is a travel allowance or advance paid to you for business travel, including fixed allowances and fuel or garage cards, according to the codes guide. Code 3802 is the use of a car the employer provides. If both appear, check with your payroll department which vehicle each amount relates to before you file.
How is the operating lease benefit under 3816 valued?
The fringe benefits guide values it at the actual cost to the employer under the operating lease plus the cost of fuel for that vehicle. The business use reduction still applies on assessment, but the reductions for costs you bear do not.
When Does a Company Car Carry No Taxable Value?
The fringe benefits guide places no value on private use in two cases. The first is a pool vehicle that other employees use in general, where your private use is infrequent or incidental and the car is not normally kept at or near your home outside business hours. The second is where your duties regularly require you to use the vehicle outside normal working hours and you are not allowed to use it privately, other than travel between home and work or infrequent incidental use.
What if I have more than one company car?
Where you have the use of more than one vehicle at the same time and all are used primarily for business, the fringe benefits guide deems the value of private use to be that of the vehicle with the highest value, or another vehicle the Commissioner decides on your application.
How Do You Declare Code 3802 on eFiling?
You declare it in the vehicle section of your ITR12, once for each vehicle you used for business. The steps below follow the ITR12 guide.
Step 1: Check the IRP5
Open your IRP5 on eFiling under the tax return and note the amount next to 3802 or 3852. If you had more than one company car during the year, ask your employer for a letter setting out the benefit value for each vehicle, as the ITR12 guide requires.
Step 2: Open the vehicle section of the ITR12
On the return wizard, answer that you had the right of use of an employer-provided vehicle so that the section appears. Complete it separately for each vehicle used for business.
Step 3: Enter the vehicle details
Enter the registration number, make, model, year manufactured, cost price or cash value, and the fringe benefit value from code 3802. SARS calculates the reduction from these fields, and the ITR12 guide states that the calculation can only be done if you supply them.
Step 4: Enter the kilometres from your logbook
Answer Y to the question "Did you use a logbook to determine your business kilometres travelled?" Then enter the starting and closing dates, opening and closing odometer readings, total kilometres and business kilometres.
Step 5: Enter the costs you paid in full
Answer the reimbursement questions for insurance, licence fees, maintenance and fuel, enter the amounts you bore yourself, and state whether a maintenance plan was included in the purchase price.
Step 6: Review the assessment
After you submit, check the ITA34 for the reduced benefit. Our guide to reading the source codes on your ITA34 explains the layout.
What Are the Common Mistakes With Code 3802?
Most errors cost money because the reduction is lost or because SARS adjusts the return after a verification.
Accepting an auto-assessment without the vehicle section
An auto-assessment is built from the data your employer and other third parties sent SARS. Your logbook is not part of that data, so the business reduction is only calculated if you complete the vehicle section and file the return. Our guide on disputing a SARS auto-assessment covers what to do if the assessment has already issued.
Counting home-to-office trips as business
Commuting is private travel under the ITR12 guide. A logbook that records daily trips to the office as business overstates the reduction and is the first thing a SARS verification tests. Our guide to SARS verification documents lists what SARS asks for.
Claiming maintenance on a car with a maintenance plan
The ITR12 guide refuses the maintenance reduction where a maintenance plan was included in the purchase price. If the plan was included, answer Y to that question and do not enter maintenance costs.
Claiming fuel your employer paid
A fuel card or reimbursement from your employer removes the fuel reduction. Only fuel you paid for in full counts.
Reconstructing the logbook at year end
SARS expects a record of each trip with its date, destination, distance and reason. Keep it as you travel, and keep the supporting records listed in our guide to the documents you need to file your tax return.
How Does Code 3802 Sit With Your Other IRP5 Benefits?
Code 3802 is one of several fringe benefit codes on an IRP5, and each one adds to your taxable income. Employer contributions to a medical scheme appear under code 3810, medical costs paid directly by your employer under code 3813, and employer provident fund contributions under code 3825. Code 3802 differs in one respect: it is the benefit you reduce yourself on the return with your own records.
Does code 3802 affect my provisional tax?
The benefit is employment income on which your employer deducts PAYE. If you are also a provisional taxpayer because of other income, your IRP6 estimate of taxable income includes it.
Do You Need Help With Code 3802?
We prepare ITR12 returns for employees with company cars, check the vehicle section against your logbook and costs, and respond to SARS if the claim is selected for verification. See our personal tax plans, read more in our personal tax guides, or book a call with our team.
