Home' Trinidad and Tobago Guardian : August 9th 2015 Contents AUGUST 9 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCIAL ROAD MAP | SBG7
asmine, a 38-year-old engineer,
lives and works in the city and
was recently promoted with a
benefit package that included
transport. Her employer offered
two options: either (a) a monthly
taxable travelling benefit of $7,500 or (b) the
use of a fully maintained company vehicle
valued at $280,000. At the end of a five-year
period, Jasmine can purchase the car for the
written down (depreciated) value plus VAT.
Jasmine already has a car but is seriously
contemplating getting rid of it because of fre-
quent visits to the mechanic, so this benefit
is timely. She already spoke to the bank who
is willing to extend 100 per cent vehicle financ-
ing for $165,000 over five years at seven per
She will need to pay for the fully compre-
hensive insurance coverage and a onetime
bank charge: $7,900 and $1,500 respectively.
She expects the insurance premium to decrease
by about 10 per cent every year once she has
no accidents. Her out of pocket expenses
include fuel and an average of $1,500 every
three months for service.
Jasmine likes the fact that she can get "more
car" without putting out a cent except gas
but she also wouldn t mind collecting the
monthly cash instead and putting it towards
the down payment for her home.
Nick's assessment and advice
Having a transport benefit is probably one
of the most attractive forms of remuneration
for any employee. A company maintained car
takes away a lot of stress and loss of time that
normally accompanies vehicle ownership. Such
a benefit is, however, not without cost.
In Jasmine s case, even though option (b)
does not require any money from her; the use
of a company car does trigger a "benefit in
kind" which is considered as taxable income.
The tax implication of this benefit would be
a key consideration in Jasmine s decision as
to which option to pursue.
At the end of the day, her desire is to be
in a better financial position so that she can
put money towards a home downpayment.
Whilst the tax on $7,500 is fairly straight-
forward where the full amount is taxed at the
highest marginal rate ($7,500 x 25 per cent =
$1,875), ($7,500 - $1,875 = $5,625), the benefit
in kind has to be determined first before she
can know how much taxes she pays. The only
exception to paying taxes on this travelling
benefit is if Jasmine gets a special "dispen-
sation" from the Board of Inland Revenue that
allows part or the entire the benefit as tax-
free. Because the full amount of $7,500 was
taxable we can assume that she does not have
such a dispensation.
The benefit in kind rule is determined either
as one third (1/3) of the monthly rental cost
for the vehicle or one per cent of the cost of
the car as a monthly benefit. The car is not
a rental so Jasmine s benefit would be: $2,800
(1 per cent x $280,000). From this amount
her tax or PAYE (pay as you earn) would
increase by $700 ($2,800 x 25 per cent ). There
is a possibility for Jasmine to offset some of
this tax if the Board of Inland Revenue allows
her to use part of her gas bills as a deductible
expense because the vehicle is a prerequisite
for her job.
We will exclude gas bills and its tax effect
from our analysis firstly because we were not
given any numbers for the expense and, sec-
ondly, she may have to spend roughly the
same amount of money on gas with either
Normally, in such cases, two thirds of gas
bills may be used as a tax deduction.
If Jasmine decides to take the travelling ben-
efit she will have a positive after-tax cash flow
of $5,625, which she must use to pay expenses
such as bank charges, loan interest, insurance
premiums and quarterly servicing.
The interest on the loan is included in each
monthly payment of $3,267 (calculated from
variables given); the difference between the
interest and the monthly payment will go
towards increasing her equity in the car. This
has a positive effect on her wealth over the
five-year period, however, the accumulated
equity in the car will be offset by the effect
of depreciation (10 per cent), which is also
considered an expense. Unfortunately, as an
employee Jasmine cannot use depreciation
(wear & tear) to claim relief on her taxes.
Table 1 brings all of the pertinent variables
in this option together to illustrate the overall
effect of her decision.
At the end of year five, the car would have
depreciated by $67,569. Jasmine would have
paid allowable expenses of $94,884, two thirds
of which ($94,884 x 2/3 = $63,256) she can
use to get a tax refund ($63,256 x 25 per cent
= $15,814). This puts her total net expenses
or loss in wealth at $146,639. This amount
would reduce the wealth created by her total
travelling benefit of $337,500 but in the end
she would still have a surplus of $190,861
($337,500 - $146,639) to which we must add
the now depreciated value of the car of $97,431
-- brining her total terminal wealth to $288,292
($190,861 + $97,431).
The final analysis
If Jasmine chooses the company car option,
she would have travelled almost for free as
the total taxes paid on the benefit in kind
would be $42,000 ($700, x 12 months x 5
Of course, as mentioned above, she would
be able to use two thirds of her gas bills to
offset part of this tax. She would have the
option to purchase the written down value of
a car costing $280,000 plus VAT which she
may be able to sell on the open market for a
If she chooses to collect the taxable travelling
benefit of $7,500 and use it to purchase a car
costing $165,000 and pick up all of the related
expenses she would end up significantly better
off financially even though she may have driven
in less comfort.
This may not be the case for everyone as
Jasmine s wealth increased as a result of pur-
chasing a cheaper car ($280,000 - $165,000
= $115,000 saved) and pocketing the surpluses
of the benefit after all of the related expenses.
Further, the fact that she lives and works
in the same city would have a positive effect
on her final wealth position because depre-
ciation may not be as high as 10 per cent
When the loan is repaid, Jasmine can con-
tinue collecting the cash benefit using the
savings to purchase her home.
F C C
to lease or purchase
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