"Hello, Nancy, my boss is going to buy a Mercedes Benz. Can you tell me whether we should buy the Benz under our company's name or under my boss's name? Which is more tax beneficial?

From time to time, I have clients call me up asking similar questions on tax treatment of motor vehicle expenses. The answer in general is quite simple and easy to remember - NO! No tax deductions for any private car (S-plated) related expenses.

Background
In March 1998, the Land Transport Authority rationalized the vehicle tax structure across different categories of vehicles, such that effective 1 April 1998, all new motor cars registered under the new tax structure will bear the same registration plates as private motor cars.

The tax treatment
Consequent to the above, the income tax treatment of motor car expenses is summarized as follows:

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Registered before 1 April 1998 - Restricted deduction (Limit to cost of $35,000)

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Registered on or after 1 April 1998 - NO DEDUCTION!

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Expenses incurred before 1 April 1998 - Deductible if the use of the car is for 183 days or less in a year

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Expenses incurred on or after 1 April 1998 - NO DEDUCTION!

Case Study
To better understand the tax treatment of motor car expenses and its implications, I have set forth below three cases for discussion.

Case 1 - Provision of S-plated car
Company A purchased an S-plated car at a cost of $100,000 for its sales manager for business use. The sales manager also uses the car for private use. Company A paid for the annual running costs including petrol, maintenance, parking and insurance totaling $30,000.

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Purchase cost of $100,000 - NO DEDUCTION of capital allowances

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Annual running cost of $30,000 - NO DEDUCTION

Case 2 - Provision of Q-plated car
Same facts as in Case 1, except this is a Q-plated car

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Purchase cost of $100,000 - Capital allowances limited to cost of $35,000

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Annual running cost of $30,000 - Limited deduction = $30,000 x ($35,000/$100,000)

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Purchase cost of $100,000 - NO DEDUCTION of capital allowances

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Annual running cost of $30,000 - NO DEDUCTION

Case 3 - Reimbursement or payment of car / transport expenses
Company A makes reimbursements and payment of car and transport expenses for its employees as follows:

Employee A - Reimbursement of expenses including petrol and parking totaling $10,000 for business use of his S-plated car

Employee B - Reimbursement of public transport expenses including taxi fares totaling $10,000 for business transport

Employee C - Payment of transport allowance of $10,000 for his business transport

Employee D - Payment for motor car hire rental of $10,000, as well as petrol and provision of the rental car for business use for a period not exceeding 183 days in a year

Tax treatment to Company A on expenses incurred for:

•	Employee A (Before and after 1 April 1998) - NO DEDUCTION

•	Employee B (Before and after 1 April 1998) - ALLOWABLE TAX DEDUCTION

•	Employee C (Before and after 1 April 1998) - ALLOWABLE TAX DEDUCTION and Company A is required to contribute CPF on the allowance except for those employees whose official duties require them to travel

•	Employee D Before 1 April 1998 - ALLOWABLE TAX DEDUCTION On and after 1 April 1998 - NO DEDUCTION

Tax treatment to employees:

•	Employee A - Reimbursement is not taxable

•	Employee B - Reimbursement is not taxable

•	Employee C - The transport allowance is a taxable income and Employee C is required to contribute CPF except where his duties require him to travel

•	Employee D - Imputed taxable income = (3/7 x rental cost incurred by Company A) + ($0.10 x private mileage (km))

Summary
Expenses incurred on motor cars are not tax deductible by both companies and individuals. An employer providing his employee with a motor car cannot get tax deductions and the employee is taxable on the imputed car benefits.

Employers may consider the payment of transport allowance to employees. Transport allowances are tax deductible provided they are incurred for business purposes. They are also considered as ordinary wages subject to CPF contribution except for official duties requiring travel. For employees, transport allowances are taxable employment income. If employees do spend the allowances for payment of public transport for business purposes, they can claim tax deduction in their tax returns provided they have records in support of the expense claims. Given the corporate tax rate of 25.5%, and the individual tax rate of 26% on chargeable income exceeding $200,000, there will be overall tax saving if the employee's chargeable income does not exceed $200,000.

Year published : 2000