Own contributions reduce non-deductible car expenses

However, in some cases employees or drivers can pay a private contribution to their employer to compensate for the private use of a company car. On 25 June 2020, the Court of Cassation confirmed that a private contribution of this kind reduces the employer’s non-deductible car expenses.

Car tax

Most car expenses are not tax deductible depending on the CO2 emissions and the type of fuel used by the company car. Employees or drivers are consequently taxed on a benefit in kind. Providing the employer correctly records the benefit in kind on an income statement and submits it to the tax authorities on time, this amount can be deducted from the employer’s non-deductible car expenses. It is justified by the fact that this share in car expenses gives rise to 'wage costs'which, contrary to car expenses, are fully tax deductible.

Former approach by the tax authorities: a private contribution is not classed as salary...

Sometimes an employee or driver may pay an own contribution to the employer from their net salary to (partly or fully) compensate for the use of the company car. Can this own contribution also be deducted from non-deductible car expenses? On 22 October 2014, the Minister of Finance replied to a parliamentary question that he saw no reason for deductibility because a private contribution cannot be equated to salary costs.

Belgian courts do allow a reduction in non-deductible car expenses

On 25 June 2020, the Court of Cassation ruled in line with earlier judgements by the courts in Brussels, Antwerp and Mons. According to the Court, a private contribution is fully deductible from non-deductible car expenses. If a third party, such as an employee or driver, reimburses car expenses to the employer, the underlying car expenses must not be partially rejected by the employer. Tax is only due with respect to the employee or driver, or another third party who actually pays the car expenses.

Do the calculation

The position taken by the Court of Cassation is excellent news for many Belgian taxpayers. They are encouraged to calculate their non-deductible car expenses correctly when preparing their corporate income tax return in order to minimise their tax liability.

Would you like to know more about the deductibility of car expenses? Find out how to calculate the deduction percentage.

Sustainability has an impact on car taxation. Our E-book 'A guide to car taxation, the future is greener' provides answers to the most pertinent questions on car taxation today. Download it here.