Fringe Benefits: Chapter 4 – Valuation of Category 1 Fringe Benefits

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Chapter 4 – Valuation of Category 1 Fringe Benefits

Category 1 – Car Benefit

Benefits related to the use of motor vehicles can be of three types:

  • use of cars;
  • use of vans; and
  • Car Cash allowances.

The fringe benefit arises if there is normally an element of personal use. A personal use element is presumed:

  • where a car is placed at the disposal of one particular person, or
  • where it is available for use outside normal hours of duty, or
  • where it is not kept on the premises of the employer (or company or partnership) overnight and during weekends, or
  • whenever it is used regularly for private purposes.

A car is any mechanically propelled road vehicle unless it is:

  • a vehicle whose construction is primarily suited for the conveyance of goods or burden of any description, for example a lorry or pick-up truck (note: estate cars, pick-up cars/vans and ‘off-road’ recreational vehicles are considered as cars falling under these rules and their use may constitute a fringe benefit);
  • a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used;
  • motorcycles; and
  • invalid carriages.

Individuals who are employed as drivers and/or messengers and who, in the performance of their duties are required to use cars owned, leased or hired by their employer but are not permitted to use the vehicle outside working hours are not considered to be enjoying a fringe benefit even though they may park the car near their private residence.

This provision does not apply to any other employee who is not employed as a driver and/or messenger and who is not required to use cars owned or leased by the employer in the normal performance of his/her duties. Penalties will apply in cases where the private use element of cars is not properly certified.

For the purposes of calculating the value of the fringe benefit, the same criteria will apply for all cars whether
‘owned’ or ‘leased’ or ‘hired’ by the employer.

ANNUAL VALUE OF FRINGE BENEFIT

The value of a car benefit depends on

  • the car value
  • the car use value;
  • the maintenance value;
  • the fuel value; and
  • the private use value.

THE CAR VALUE

The car value is:

  • In the case of ‘owned’ cars, the actual cost as per invoice (including value added tax, customs duty, registration tax, plus any other taxes and delivery charges). Whenever discounts of a personal nature are obtained, except for discounts available to the general public such as ‘trade fair discounts’ or other ‘special offer discounts’, the value of such discounts must be added back to the amount shown on the purchase invoice. To this must also be added the actual cost of providing any optional accessories fitted to the car, whether prior or subsequent to delivery. The value of any optional accessories must also include all taxes, fitting and delivery charges.
  • In the case of leased cars, second hand cars and company-owned cars purchased prior to 1st January 2001 for which the actual value cannot be readily determined, the value is determined according to the price list issued by the Commissioner of Inland Revenue.

An increase in the car value through the addition of extra accessories will give rise to a new ‘car use value’ and will subsequently effect the calculation of the relative fringe benefit. In such cases the new car fringe benefit value will be effective as from the date that the extra accessories were fitted.

THE CAR USE VALUE

The value of the use of a car is 17% of the car value. For cars which are older than 6 years since the year of manufacture the car use value is 10%.

THE MAINTENANCE VALUE

This represents the value of insurance, servicing, road and driving licence etc. It is a percentage of the car value:

  • if the car value is less than or equal to Lm12,000 it is 3% of the car value;
  • if the car value is more than Lm12,000 it is 5% of the car value.

THE FUEL VALUE

This represents the value of fuel where it is paid by the employer. It is a percentage of the car value:

  • if the car value is less than or equal to Lm12,000 it is 3% of the car value;
  • if the car value is more than Lm12,000 it is 5% of the car value.

The ‘fuel value’ is only taken into account when the employer pays for fuel.

THE PRIVATE USE VALUE

This is a pre-determined share of the total of the car use value, maintenance value and fuel value and represents the value of the private use of the car. This share is determined as being a percentage according to the value of the car when new as shown below.

Car Value (Lm) Private Use Value Of the total of:[1] the car use value,[2] the maintenance value, and

[3] the fuel value
From To
0 7,000 30%
7,001 9,000 40%
9,001 14,000 50%
14,001 20,000 55%
OVER 20,000 60%

REDUCTION IN THE PRIVATE USE VALUE (for point-to-point service only)

The private use value is reduced from 30% to 20% when:

  • the car value is Lm7,000 or less; and
  • the car is solely or mainly used for point-to-point service. A point-to-point service is presumed to exist when the relevant car is heavily used for business purposes such as in the case when an employee is required to deliver goods or services or provide transport to clients and other employees.

When such circumstances exist, the employer is required to apply to the Commissioner of Inland Revenue, on the appropriate form available from the Inland Revenue Department, to reduce the private use value to 20%.

EXAMPLE 1

CAR PURCHASED IN 1998 – CAR VALUE LM 7,000 – FUEL PAID BY EMPLOYER.

Step 1 Calculate CAR USE VALUE17% of car value= 17% x 7,000

= 1,190

 Step 2 Add MAINTENANCE VALUE3% of car value= 3% x 7,000

= 210
Step 3 Add FUEL VALUE3% of car value= 3% x 7,000

= 210

 Step 4 Calculate PRIVATE USE VALUEDetermine % from table, in this case 30%= 30% x (1,190 + 210 + 210)

= 483

In this example the employee’s salary is ‘inflated’ by Lm483 (i.e. Lm40.25 per month) before making FSS deductions.

EXAMPLE 2

CAR PURCHASED IN 2000 – CAR VALUE LM 13,000 – FUEL PAID BY EMPLOYER.

Step 1 Calculate CAR USE VALUE17% of car value= 17% x 13,000

= 2,210

 Step 2 Add MAINTENANCE VALUE5% of car value (car exceeds Lm 12,000)= 5% x 13,000

= 650
Step 3 Add FUEL VALUE5% of car value (car exceeds Lm 12,000)= 5% x 13,000

= 650

 Step 4 Calculate PRIVATE USE VALUEDetermine % from table, in this case 50%= 50% x (2,210 + 650 + 650)

= 1,755

In this example the employee’s salary is ‘inflated’ by Lm1,755 (i.e. Lm146.25 per month) before making FSS deductions.

EXAMPLE 3

CAR PURCHASED IN 1993 – CAR VALUE LM 8,000 – FUEL PAID BY EMPLOYER.

Step 1 Calculate CAR USE VALUE10% of car value SINCE Car is older than 6 years= 10% x 8,000

= 800

 Step 2 Add MAINTENANCE VALUE3% of car value= 3% x 8,000

= 240
Step 3 Add FUEL VALUE3% of car value= 3% x 8,000

= 240

 Step 4 Calculate PRIVATE USE VALUEDetermine % from table, in this case 40%= 40% x (800 + 240 + 240)

= 512

In this example the employee’s salary is ‘inflated’ by Lm512 (i.e. Lm42.66 per month) before making FSS deductions.

PART YEAR

When a car fringe benefit is availed of for part of a year (e.g. an employee who takes up or who terminates his employment during the year) the yearly value of the fringe benefit will be reduced accordingly. The monthly value of the fringe benefit is to be taken at 1/12th of the annual value. The value for part of a month is the annual value multiplied by the number of days for the month in question divided by 365.

REPLACEMENT CAR

If a car is replaced during the year with a different model, except when the replacement is a temporary measure (e.g. when replacing a car which is being repaired), the original valuation will be deemed as having been expended and a new valuation will have to be made based on the value of the new car. The new valuation will commence from the date of use of the new car.

There will be no deduction from the fringe benefit value if the car is not available for use for less than 30 days. If a replacement car is made available, the original valuation will still apply. When the car is not available for a period of 30 days or more a pro rata deduction will be made from the fringe benefit value.

VANS

A taxable benefit arises if a van is made available to an employee by reason of his or her employment and it is available for the employee’s private use. A van, for the purpose of this benefit, is a vehicle built primarily to carry goods or other loads (but not people) with a design weight not exceeding 3500 kilograms.

The annual fringe benefit value for vans is being determined as a standard amount of Lm200 annually irrespective of the type, model or year of manufacture/registration of the relevant van.

CAR CASH ALLOWANCES

If cash is paid to an employee by way of a car allowance with respect to the use by the employee of his own car for business purposes, the allowance is understood as having a fringe benefit component upon which income tax will be due. The annual fringe benefit value is:

  • if the annual cash allowance is Lm1,000 or less it is 50% of the allowance;
  • if the annual cash allowance exceeds Lm1,000 it is the cash allowance less Lm500.

Any reimbursement (including that by way of vouchers/credit cards etc) in relation to fuel paid to an employee who is already in receipt of a car cash allowance is added to that allowance and the 50% or Lm500 maximum deduction applies on the total amount.

This deduction of Lm500 or 50% as set out above applies only when:

  • the allowance is specified in a collective agreement or in the employee’s contract of employment; and
  • the employee is not a director or a partner or a person in a controlling position of a company or a partnership;
  • the employee uses his own car,
  • the employee does not benefit from the use of another car owned by the employer.

When any of the above conditions is not met the full cash allowance is taxable.

Where, in the case of a car fringe benefit, the employer reimburses fuel by way of vouchers/credit cards etc, for the purpose of computing the fringe benefit value the fuel is to be considered as directly paid by the employer and the relative 3% or 5% fuel benefit rate will apply. Where however, a separate Cash Allowance is paid for fuel, the fringe benefit on the car is computed without the fuel benefit rate, and the Cash Allowance is taxed in full without any deduction.

Where the use by an employee of a car that is owned by the employer gives rise to a fringe benefit, and the employee is paying for the car through instalments, then the car would still be considered as owned by the employer until the transfer is effected. Until then, the fringe benefit value would be computed on the full price of the car.

MULTIPLE CAR CASH ALLOWANCES

When a beneficiary is in receipt of multiple car cash allowances either from the same employer or from associated employers or from separate employers, the 50% deduction with a maximum of Lm500 can only be used once, i.e. on one cash allowance only. It is the responsibility of the employee to inform his/her employer that he is already benefiting from a deduction from a car cash allowance and that no further deductions should be allowed.

Example

A beneficiary receives two car cash allowances of Lm100 per month.

On the 1st car allowance the taxable value of the fringe benefit will be Lm1,200 less Lm 500 = Lm 700. On the 2nd car allowance the taxable value of the fringe benefit will be Lm1,200 less Lm0 = Lm 1,200. In all other cases any cash allowances are fully taxable under normal FSS rules.

REIMBURSEMENTS ON RATE PER KILOMETRE BASIS

Where reimbursements are made to an employee for using his/her own car for official business and such reimbursements are made according to the distance travelled in the car (e.g. where expenses are reimbursed on the basis of an agreed number of cents per km travelled) these reimbursements do not constitute a fringe benefit provided:

  • the rate of payment for each km travelled does not exceed 15 Maltese cents per kilometre,
  • payments only cover the business use element,
  • all reimbursable travel is to be recorded in a logbook readily available at any time for eventual verification byInland Revenue, and
  • the log book is retained by the employer for at least 6 years.

When any of these conditions is not met, the full reimbursement value will be considered as a car cash allowance and will be subject to the same valuation criteria (See Car Cash Allowances on page 19).