Understanding the Two Options
Before we get to the numbers, it is important to understand exactly what each option involves — because the tax treatment is the tip of a much larger iceberg.
The Travel Allowance
A travel allowance is a cash amount paid to an employee specifically to compensate them for using their own vehicle for business purposes. The key word is own — the employee buys the car, insures it, maintains it, and carries the full depreciation risk. In exchange, they receive a cash allowance from their employer.
From a tax perspective, SARS treats 80% of the travel allowance as taxable income during the year. At year end, the employee submits a logbook and claims a deduction based on actual business kilometres multiplied by the SARS prescribed rate per kilometre — currently R4.84 per kilometre for the 2025/2026 tax year.
The Company Car
A company car is a vehicle owned by the employer and made available to the employee for business and private use. The employee pays nothing for the vehicle — no purchase price, no bond repayments, no insurance premiums, no service and maintenance costs unless specifically agreed. The company carries all of that.
From a tax perspective, the right of use of a company car is a fringe benefit, calculated at 3.5% of the vehicle's determined value per month — or 3.25% if the vehicle has a maintenance plan included. This fringe benefit is added to the employee's remuneration and taxed accordingly.
Here is the critical point: if the employee can prove that 80% or more of the vehicle's use is for business purposes — through a detailed SARS-compliant logbook — only 20% of the monthly fringe benefit is included in remuneration. The tax impact becomes dramatically lower.
- Tax year: 2025/2026 (1 March 2025 – 28 February 2026)
- Marginal tax rate: 36% (taxable income R512,801 – R673,000)
- Annual kilometres: 25,000 total — 20,000 business (80%)
- SARS prescribed rate: R4.84 per kilometre (2026)
- Company car rate: 3.5% per month (no maintenance plan)
- Business use: 80% — proven by logbook
Vehicle 1 — BMW 5 Series M Sport
The BMW 5 Series is a popular choice for senior employees and business owners. At a determined value of R1,200,000, the tax difference between a travel allowance and a company car is significant — but the financial difference is even more striking.
We assume the employee receives a travel allowance of R18,000 per month — which most would agree is a reasonable allowance for a vehicle of this value.
Option 1 — Travel Allowance
R18,000/month · Employee owns the vehicle
Option 2 — Company Car ✅
3.5% × R1,200,000 · Company owns the vehicle
RECOMMENDEDBMW 5 Series — Company Car Advantage
The company car saves R25,920 per year (R2,160/month) in PAYE compared to a travel allowance. But the bigger advantage is that the employee does not need to find R1,200,000 to purchase the vehicle — and the company absorbs the full depreciation, insurance and maintenance costs. On a vehicle of this value, annual depreciation alone can exceed R150,000 to R200,000.
The tax saving on the BMW is meaningful — R2,160 per month. But the real advantage is that you never had to buy a R1.2 million car. The company did. And when it depreciates, that is the company's problem, not yours.
— Chris Schutte, Registered Tax Practitioner · Your Accountant®Vehicle 2 — Toyota Hilux Double Cab 2.8 GD-6
The Toyota Hilux Double Cab is one of the most popular business vehicles in South Africa — particularly in industries where a practical, capable vehicle is needed for site visits, client calls and carrying equipment. At a determined value of R700,000, the comparison tells a similarly compelling story.
We assume the employee receives a travel allowance of R12,000 per month for the Hilux — again, a reasonable market-related allowance for a vehicle of this specification.
Option 1 — Travel Allowance
R12,000/month · Employee owns the vehicle
Option 2 — Company Car ✅
3.5% × R700,000 · Company owns the vehicle
RECOMMENDEDToyota Hilux — Company Car Advantage
The company car saves R20,304 per year (R1,692/month) in PAYE. More importantly, the employee does not need to finance a R700,000 vehicle. At typical finance rates, the monthly bond repayment on R700,000 over 60 months at 11.75% would be approximately R15,600 per month — money the employee never needs to spend.
Side-by-Side Summary — Both Vehicles
| Factor | Travel Allowance | Company Car ✅ |
|---|---|---|
| BMW 5 Series (R1,200,000) | ||
| Annual PAYE on car benefit | R 62,208 | R 36,288 |
| Tax saving (company car) | — | R 25,920/yr |
| Employee purchase cost | R 1,200,000 | R 0 |
| Toyota Hilux Double Cab (R700,000) | ||
| Annual PAYE on car benefit | R 41,472 | R 21,168 |
| Tax saving (company car) | — | R 20,304/yr |
| Employee purchase cost | R 700,000 | R 0 |
| Depreciation risk | Employee | Company |
| Insurance & maintenance | Employee | Company |
The Depreciation Argument — Often Overlooked
The tax saving is real and meaningful — but it is not the most important argument for a company car. The depreciation argument is.
A BMW 5 Series worth R1,200,000 today will likely be worth R650,000 to R750,000 in three years and R400,000 to R500,000 in five years. That is a loss in value of R700,000 to R800,000 over the ownership period — approximately R140,000 to R160,000 per year.
With a travel allowance, the employee absorbs every rand of that depreciation personally. The travel allowance does not compensate for depreciation — it compensates for running costs per kilometre.
With a company car, the depreciation is the company's problem entirely. The company carries it in its books. The company absorbs the loss. The employee simply drives the vehicle and keeps a logbook.
When you add the depreciation advantage to the tax saving, the total financial benefit of a company car over a travel allowance for a BMW 5 Series over five years can easily exceed R800,000 to R1,000,000. That is not a marginal difference — it is transformative.
The tax saving on a company car is a bonus. The real win is that you drive a R1.2 million vehicle, the company absorbs R150,000 per year in depreciation, and you have not spent a single rand of your own money to make that happen.
— Chris Schutte, Registered Tax Practitioner · Your Accountant®The Logbook — The One Non-Negotiable
Everything in this article — every tax saving, every percentage — depends on one thing: a SARS-compliant logbook that proves 80% or more business use of the vehicle.
Without the logbook, SARS defaults to 80% of the fringe benefit being included in remuneration. On the BMW, that means PAYE on R403,200 per year instead of R100,800. The tax cost more than doubles — and the advantage over a travel allowance disappears entirely.
A SARS-compliant logbook must record for every trip:
- Date of the trip
- Starting odometer reading
- Ending odometer reading
- Kilometres travelled
- Starting point
- Destination
- Business purpose of the trip
Private trips — home to office, personal errands, weekends — must also be recorded. SARS needs to see the full picture, not just the business trips. The logbook must be maintained contemporaneously — recorded at the time of each trip, not reconstructed at year end.
There are excellent apps available that make this process almost effortless — GPS-tracked trip logging that auto-populates the logbook and exports a SARS-compliant report at year end. Your Accountant® can recommend the right solution for your situation.
One More Benefit — The Maintenance Plan Reduction
If the company vehicle has a maintenance plan included — as many new vehicles do — the fringe benefit rate drops from 3.5% to 3.25% per month. On the BMW at R1,200,000, that saves a further R3,000 per month in the fringe benefit calculation, reducing the annual fringe benefit from R504,000 to R468,000 — and the taxable portion (at 20%) from R100,800 to R93,600. The PAYE saving is a further R2,592 per year.
It is always worth asking when purchasing a company vehicle whether a maintenance plan is included or can be added — the tax saving over the term of the plan is meaningful.
When a Travel Allowance Still Makes Sense
To be fair and complete — there are situations where a travel allowance is the more appropriate structure:
- Where the employee already owns a fully paid-up vehicle with no bond and minimal ongoing costs
- Where the business use is below 80% and the travel allowance amount is modest relative to the vehicle value
- Where the employer does not want to carry the asset and depreciation on its balance sheet
- Where the employee's tax rate is low enough that the fringe benefit on a high-value vehicle creates a disproportionate tax burden
Each situation is different. The right answer depends on the specific numbers — the vehicle value, the employee's marginal tax rate, the actual business use percentage, and the employer's preference for asset ownership. This is exactly the kind of analysis Your Accountant® conducts as part of a full remuneration review.
Frequently Asked Questions
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