What keeps taxpayers awake at night?
Judging by the many questions that I’ve been asked as a tax practitioner over the years, there is a definite ‘Big Three’ when it comes to problems that cause taxpayers sleepless nights: cars, shares, and property.
The tax treatment of these three items probably causes more anxiety, and has spawned more urban legends, than probably any other area of tax. In this first of a three-part series, we kick off with cars – more particularly, when you can claim car expenses, and how your claim is calculated.
Basic principles
Firstly, you can only claim car expenses against your taxable income to the extent that your car was used to produce income, which is in line with the principles contained in Section 11 of the Income Tax Act – the so-called “general deduction formula”.
This means that there must be an element of business – SARS is not big on granting tax relief for personal expenditure, and it is no different with your car.
Secondly, if you are an employee, you can only submit a claim if you receive a travel allowance. The reasoning here is that it must be a specific and inherent requirement of your job for you to undertake business travel using your private vehicle, and an allowance should be provided to cover the costs of such travel.
Your claim must be apportioned between your business and private travel. SARS will only allow a deduction in respect of the business portion.
A bone of contention among many taxpayers concerns travel between your home and your normal place of business. SARS’ standpoint is that such trips constitute private travel. Fair enough – you shouldn’t be entitled to tax relief simply for showing up at work.
But what about those instances where you go straight to a client? It seems that even SARS has different interpretations, depending on which office you deal with. I have had cases where one official claims that the first and last trips of the day should always be considered private.
This could, however, result in the absurd situation where you live in Alberton and work in Sandton, but on a particular occasion, you drive down to Durban to see a client. Surely this trip cannot be regarded as private?
A more pragmatic approach in this case, and one adopted by many SARS offices, is to deduct the normal distances between your home and office from the first trip if you go directly from home to a client.
This, of course, does not apply if you work from home, in which case the ‘clock starts’ from the time you leave home to go to your client.
Travel allowances
As already mentioned, for an employee to be in a position to receive a travel allowance, business travel must be an inherent part of the job. Given that travel to and from work is deemed to be private travel, you are ineligible to receive a travel allowance if you work from a single office and never undertake business travel.
Secondly, your travel allowance must be reasonable in comparison to the amount of business travel you are expected to undertake, as well as your overall salary package.
The latter part is important to bear in mind when structuring a ‘cost-to-company’ remuneration package. For example, if your annual salary package is worth R1.2 million, SARS will definitely raise an eyebrow if the travel allowance component comes to R800,000.
Finally, it is critical that your employment contract sets out your job title, your place of work, the requirement to undertake business travel, and that a travel allowance will be provided to enable you to purchase a vehicle and to defray the costs thereof that relate to your business travel.
When it comes to taxing your travel allowance, your payroll department needs to note the following (according to the SARS Budget Guide 2025):
Eighty per cent of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.
No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle, and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (e.g., if the vehicle is covered by a maintenance plan).
The fixed cost must be reduced on a pro rata basis if the vehicle is not used for business purposes for a full year.
The actual distance travelled during a tax year, and the distance travelled for business purposes, substantiated by a logbook, are used to determine the costs that may be claimed against a travelling allowance.
Alternatively, where an allowance or advance is based on the actual distance travelled by the employee for business purposes, no tax is payable on an allowance paid by an employer to an employee, up to R4.76 per kilometre, regardless of the value of the vehicle.
However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.
Claiming expenses
Now let’s get down to the claim itself. What sort of expenses can you claim in respect of your vehicle?
For starters, let’s look at the vehicle itself. If you own the vehicle outright or have financed it under an instalment sale, you are entitled to claim a fixed wear and tear allowance of 20% per annum over five years, based on the cost price including VAT.
Once the vehicle has been fully ‘written off’ after five years, you may no longer claim this allowance in respect of the same vehicle.
However, if your job is such that your business travel is likely to place abnormal wear on your vehicle (for example, if you are a regional manager whose job entails visits to a number of stone quarries), you may apply to SARS to be allowed to write the vehicle off over a shorter period.
In an attempt to curb perceived abuse, a provision was introduced a number of years back whereby the amount on which wear and tear is based was capped at R360,000. Given the rise in vehicle costs since this cap came into force, it has gradually increased to the point where, for the 2025/26 tax year, the cap is now R800,000.
It therefore stands to reason that your vehicle needs to be appropriate for the job. SARS will undoubtedly smell a rat if your vehicle in the above example is a Bentley (although, in practice, these kinds of abuses have been mostly curtailed due to the cap on the value of the vehicle).
When it comes to financed vehicles, with hire purchase agreements, you are also entitled to claim the interest portion of your monthly instalment.
However, if the vehicle is leased, you can claim the full monthly instalment. In this case, you are not entitled to claim the fixed wear and tear allowance, since you are in effect claiming the ‘capital’ portion of the lease instalment as well.
As far as running expenses are concerned, don’t forget to include the following: insurance, routine servicing, repairs, licensing, fuel, oil – even the cost of washing your vehicle can be claimed. Parking and toll fees can be claimed as well.
When it comes to your actual business travel upon which your claim is based, don’t be misled by the box on your tax return where you indicate whether or not you kept a logbook. SARS’s ‘golden rule’, when it comes to business travel, is simple: No logbook, no claim.
‘Actual costs’ claims
A claim based on the actual expenses incurred is referred to as an ‘actual costs’ claim. This is exactly what it says on the tin.
To claim on this basis, SARS will expect you to be able to substantiate the actual costs incurred. Fortunately, your credit card (or fleet card) statement normally itemises your running costs (which include fuel, servicing, tyres, tolls, parking, etc.) quite nicely.
For other vehicle-related expenses that don’t appear on your card statement, SARS may call for the following documents to substantiate these:
- Annual vehicle license: The form from which you cut out your license disk will show the cost thereof.
- Insurance: You should have a cover note or schedule from your car insurance provider.
- Loan interest: Request an annual loan statement from the institution that financed your car.
- Wear and tear: You may claim up to 20% per annum based on the cost price of the car. Your sale agreement will set out the cost price, together with any accessories and options that were added at the time of purchase.
When it comes to maintenance plans, these are often included in the price of the vehicle.
However, unless the maintenance plan runs for five years, it makes sense to ask the dealer to reflect the cost of this plan separately, since (for example) a three-year maintenance plan can be claimed over three years, rather than five.
‘Deemed costs’ claims
If you are an employee and receive a travel allowance, you have the option of formulating your claim based on ‘deemed costs’ instead.
SARS publishes a table of deemed costs each year, which includes a ‘fixed’ element that covers wear and tear, insurance, and interest, as well as a ‘per kilometre’ element for fuel and for maintenance (see box).
The use of this table is, however, only available to recipients of a travel allowance. Commission-earners and other taxpayers who claim vehicle expenses in respect of business travel may not use the table, but must base their claim on actual cost.
WRITTEN BY STEVEN JONES
Steven Jones is a retired tax practitioner and member of the South African Institute of Professional Accountants.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.