FIRSTMATE BLOG: CAPTAINS LOG

Motor Vehicle Allowance Reimbursement20.10.2014

Question

Our client owns a European car. He is a shareholder of Company A and receives a Motor Vehicle Allowance Reimbursement of $2,000 per month from the company to cover the lease and any motor vehicle expenses.

Do we need to ensure there is some sort of invoice every month for this? Or, do we need supporting documentation to ensure the motor vehicle allowance reimbursement does not become subject to PAYE.

Answer

The Company can pay the shareholder-employee a non-taxable motor vehicle allowance to the extent that the allowance reimburses the employee for business use of the motor vehicle.

In order to demonstrate that the monthly allowance amount of $2,000 is reasonable the shareholder-employee should keep a log book for 3 months to determine the business use as a proportion of total travel.

To the extent the allowance exceeds reimbursement for monthly business use that portion will be taxable.

The reimbursement could factor in petrol, maintenance .(depending on the nature of the lease) as well as the monthly lease amount.

No invoice should be issued by the shareholder.

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