(10) Question 4 Ahmed Khan has been given the choice by his employer Amber Ltd to select as from 1 March 2017 either the free use of a company car for private and business purposes or a travelling allowance. Ahmed would keep a detailed logbook, and estimates that he will travel a total of 35 000 km per annum, of which 15 000 km would be for business purposes. Travelling allowance If he chooses the travelling allowance, he will receive an allowance of R3 800 a month. He will purchase a new car on 1 March 2017 for R180 000 (excluding VAT at 14%) In order to assist him to purchase the car, the company will on 1 March 2017 grant him a loan of R100 000 at an interest rate of 1,5% per annum. Assume an official interest rate of 8,5% per annum for the entire period. The capital will be repayable in eight six-monthly payments of R12 500 each. The first payment is due on 31 August 2017 The expenses for the period to be incurred in running the car have been estimated as follows: Fuel (private use R6 000 included) R14 500 Maintenance R7 500 Licence R480 Insurance R4 600 Use of a company car In the case of the free use of a company car, the company will pay for the maintenance of the car. However, Ahmed must pay for the fuel when using the car for private purposes The car that he will use was purchased by the company in January 2017 for R170 000 (including VAT at 14%). The car would be purchased specifically for him and no other person would have the use of the vehicle Calculate whether Ahmed Kahn should choose the travelling allowance or the use of the company car based on his estimated figures. Only compare the tax implications of the two possibilities in respect of the year of assessment ended 28 February 2018. [19] (10) Question 4 Ahmed Khan has been given the choice by his employer Amber Ltd to select as from 1 March 2017 either the free use of a company car for private and business purposes or a travelling allowance. Ahmed would keep a detailed logbook, and estimates that he will travel a total of 35 000 km per annum, of which 15 000 km would be for business purposes. Travelling allowance If he chooses the travelling allowance, he will receive an allowance of R3 800 a month. He will purchase a new car on 1 March 2017 for R180 000 (excluding VAT at 14%) In order to assist him to purchase the car, the company will on 1 March 2017 grant him a loan of R100 000 at an interest rate of 1,5% per annum. Assume an official interest rate of 8,5% per annum for the entire period. The capital will be repayable in eight six-monthly payments of R12 500 each. The first payment is due on 31 August 2017 The expenses for the period to be incurred in running the car have been estimated as follows: Fuel (private use R6 000 included) R14 500 Maintenance R7 500 Licence R480 Insurance R4 600 Use of a company car In the case of the free use of a company car, the company will pay for the maintenance of the car. However, Ahmed must pay for the fuel when using the car for private purposes The car that he will use was purchased by the company in January 2017 for R170 000 (including VAT at 14%). The car would be purchased specifically for him and no other person would have the use of the vehicle Calculate whether Ahmed Kahn should choose the travelling allowance or the use of the company car based on his estimated figures. Only compare the tax implications of the two possibilities in respect of the year of assessment ended 28 February 2018. [19]
