• 7.4 Statutory formula method

    Use the following formula to calculate the taxable value of car fringe benefits under the statutory formula method:

    Taxable value = ((A × B × C) ÷ D) − E
                                       

    Where:

    • A = the base value of the car
    • B = the applicable statutory percentage
    • C = the number of days in the FBT year when the car was used or available for private use of employees
    • D = the number of days in the FBT year
    • E = the employee contribution.

    Determining the base value of the car

    Base value of a car you own

    The base value of a car you own is:

    • the original cost price you paid (excluding registration and stamp duty)
    • the cost of any fitted non-business accessories
    • dealer delivery charges.

    All cost and charges include goods and services tax (GST) and luxury car tax where appropriate.

    Non-business accessories are fitted accessories not required to meet the special needs of your business operations. An example of a business accessory is a fitted GPS in a salesman's car, while alloy wheels, rear spoilers and seat covers are non-business accessories. Any non-business accessories added after you purchase the car increase the base value of the car for the year in which they are added and for subsequent years.

    Base value of a car you lease

    Where the lease started when the lessor bought the car, the base value is the cost price to the lessor (including GST and luxury car tax). Any non-business accessories added after the lessor bought the car increase the base value of the car for the year in which they are added and for subsequent years.

    Where the lessor acquired the car at some other time, the base value is the market value (including GST and luxury car tax) at the time you first held the car (that is, the amount a person could reasonably be expected to have paid to buy the car under an arm's length transaction).

    Cars under a novated lease are subject to the same car fringe benefit valuation rules as other cars you lease - for more information, see section 7.7.

    Cost price

    Cost price is generally the expenditure incurred by you or the lessor for the acquisition or delivery of the car. Usually, this is the purchase price (GST included) that has been paid, although there may be arrangements in place which have an impact on the cost price.

    For example, where an employee provides a trade-in or cash payment as part of the sale agreement, the cost price would be the purchase price minus the trade-in or cash payment. Fleet discounts and manufacturer rebates may also reduce the expenditure incurred on the acquisition of the car.

    Alternatively, where an employee pays an amount directly to you, you will need to look at the terms of any agreements and contracts in place to determine whether this payment is an employee contribution or not.

    An employee contribution does not reduce the cost price of the car.

    See also:

    Reducing the base value after four years

    You do not reduce the base value of a car each year. However, you can reduce the base value of a car by one-third in the FBT year that starts after you have owned or leased the car for four years. That is, the reduction applies from 1 April after the fourth anniversary of the date on which you first owned or leased the car. The reduction applies only once for a particular car and you then use the reduced base value for subsequent years. The reduction does not apply to non-business accessories added after you acquired the car.

    Example: Reducing the base value after four years

    An employer purchases a car for $30,000 (including GST) on 1 July 2003. The employer can reduce the base value of the car by one-third ($10,000) in the FBT year beginning 1 April 2008.

    End of example

    Safeguards

    There are safeguards to make sure the true base value of a car is not artificially reduced by devices such as sale and lease-back or buy-back. The safeguards also apply where a leased car is acquired by the lessee on termination of the lease. Under the safeguards, the base value is determined at the time you or your associate first held the car and according to whether it was owned or leased at the time.

    There are further safeguards to ensure a car that changes ownership at less than market value, or a car that is acquired at no cost (for example, a car donated to a charitable organisation) is priced appropriately. Generally, such a price is the market value of the car at the time of transfer.

    Determining the statutory percentage

    A flat statutory rate of 20% applies (subject to transitional rules), regardless of the distance travelled, to all car fringe benefits you provide after 7.30pm AEST on 10 May 2011 (except where there is a pre-existing commitment in place to provide a car).

    The statutory percentages for car fringe benefits provided before 7.30pm AEST on 10 May 2011, or where you have a pre-existing commitment in place to provide the car after this time, are as follows:

    Statutory percentages for car fringe benefits

    Total kilometres travelled during the year

    Statutory percentage

    Less than 15,000

    26

    15,000 to 24,999

    20

    25,000 to 40,000

    11

    More than 40,000

    7

    You can continue to use these statutory rates for all pre-existing commitments unless there is a change to that commitment.

    Transitional arrangements and rates

    The move to one statutory rate of 20% will be phased in over four years. There will be transitional arrangements that apply to any new commitments entered into from 10 May 2011 to 31 March 2015. Where there is a change to a pre-existing commitment these transitional arrangements will also apply. The following statutory rates should be used:

    Transitional arrangements statutory rates

    Total kms
    travelled during
    FBT year

    Statutory rate

    From
    10 May 2011

    From
    1 Apr 2012

    From
    1 Apr 2013

    From
    1 Apr 2014

    Less than 15,000

    0.20

    0.20

    0.20

    0.20

    15,000 to 25,000

    0.20

    0.20

    0.20

    0.20

    25,000 to 40,000

    0.14

    0.17

    0.20

    0.20

    More than 40,000

    0.10

    0.13

    0.17

    0.20

    Skipping the transitional arrangements

    For any new commitments entered into during this period, you can choose to skip the transitional arrangements and apply the 20% statutory rate; however, this choice is subject to certain conditions mentioned below.

    You cannot skip the transitional arrangements where an employee would be worse off as a result of this choice. That is, the employee cannot be placed at a direct financial disadvantage as a result of this choice, unless you have obtained the consent of the employee.

    For example, you cannot require an employee to bear the financial impact of skipping the transitional arrangements by charging the employee a higher salary packaging amount as a result of an increase in FBT payable merely to save on compliance costs, unless you have obtained the consent of the employee to do so.

    The choice to skip the transitional arrangements is on a car-by-car basis.

    You do not need to notify us of your choice, as your business records are sufficient evidence of this.

    Meaning of the term commitment

    A 'commitment' is entered into at the point there is a financially binding commitment to a transaction on one or more of the parties and it cannot be backed out of. The commitment needs to be one that relates to the application or availability of the car to an employee or associate.

    For example, there are a number of steps involved where you negotiate with an employee and a salary packaging provider to put in place a novated lease arrangement in relation to a car. A commitment would generally be entered into, and would be financially binding, when you or the employee orders the car that is to be provided by way of a novated lease arrangement and there is a financial penalty if the order is cancelled.

    The term 'pre-existing commitment' means a commitment to the application or availability of the car that was made before 7.30pm AEST on 10 May 2011.

    Where you, or an employee or their associate, has committed to the car before 7.30pm AEST on 10 May 2011, but provision of the car fringe benefit does not take place until after 7.30pm AEST on 10 May 2011, the old statutory rules will apply.

    Example: Commitment entered into before 7.30pm AEST 10 May 2011 but car delivery is delayed

    During April 2011, Constance began discussions with her employer and a salary packaging provider about obtaining a car through a salary sacrifice arrangement.

    On 2 May 2011, Constance agreed to a particular option put forward by the salary packaging provider and the car was ordered.

    The car is scheduled for delivery on 1 August 2011, at which point she will sign documents with the leasing provider for the provision of the car.

    As Constance entered into a commitment on 2 May 2011, the old statutory rules will apply.

    End of example
    Change to a pre-existing commitment - same employer

    Alterations to a pre-existing commitment can result in the application of the new 20% flat rate (or transitional rate). Examples of such alterations include:

    • refinancing the car
    • alterations to existing lease contracts, such as changing the duration of an existing lease contract and changes to a lease to reflect a revised residual value
    • where accessories (such as window tinting, DVD players, luggage racks or bull bars) are fitted to a leased car after the lease started, the lease is altered and lease payments are increased to reflect this change.

    If changes such as these are made then, where you remain as the employer, you will only begin to apply the flat 20% rate (or applicable transitional rate) from the beginning of the next FBT year.

    Example: Change to a pre-existing commitment made part way through the FBT year - same employer

    Blake entered into a novated lease arrangement with his employer in 2009. The original lease period expired in September 2011. The car travelled 32,000 kilometres in the 2011-12 FBT year and the annualised kilometres travelled in the 2012-13 FBT year will be 34,000. The use of the car is valued under the statutory formula method.

    In August 2011, Blake decided to refinance the same car for another year and signed documents agreeing to extend the lease by 12 months. This would be considered to be a change to the pre-existing commitment and the new flat 20% rate (or transitional rate) can apply. However, the new rates will only begin to apply from the beginning of the next FBT year following the date of this changed commitment (that is, from 1 April 2012).

    This is because a changed commitment to the car by the same employer began to apply part way through an FBT year in relation to a car that was available from 1 April 2011. The statutory rate of 0.11 (that is, the rate under the old rules) will apply for the entire 2011-12 FBT year.

    For this car, the new statutory rates will begin to apply from 1 April 2012. Accordingly, for the FBT year starting on 1 April 2012, the transitional rate of 0.17 will apply.

    End of example
    Change of employer or change of car

    FBT applies to you as an employer. Any change of the employer, even within the same group of companies, will constitute a new commitment to the application or availability of the car by the new employer. This means the statutory rate of 20% (or applicable transitional rate) will be used by the new employer immediately.

    Likewise, any change of car (after 7.30pm AEST on 10 May 2011) will always be a new commitment to which the 20% flat rate (or applicable transitional rate) will apply immediately, even where the employer stays the same.

    Example: Change in employer

    Anna works for X Co and entered into a three year novated lease arrangement with her employer in January 2010. The car fringe benefits are valued by her employer using the statutory formula method.

    On 12 November 2011, Y Co officially takes over X Co and Anna is now an employee of Y Co.

    As Anna's employer has changed, car fringe benefits provided by the new employer from 12 November 2011 will come under the new statutory rates immediately.

    End of example
    Alterations that would not be considered to be changes to a pre-existing commitment

    Any alterations that do not result in a change to the financially binding commitment to the application or availability of the car will not be considered to be changes to a pre-existing commitment and the old statutory rates can continue to be applied. Examples of alterations that would not be considered to be changes to a pre-existing commitment include:

    • more or fewer kilometres travelled resulting in a change to the amount of FBT payable and subsequent payments by the employee to you under a salary packaging arrangement, but does not involve an amendment or change to the lease contract
    • adjustments to salary packaging arrangements which alter post-tax employee contributions
    • use of an employer's 'fleet car' by different employees (not involving any salary sacrifice arrangements).

    Annualised kilometres

    If you own or lease a car for part of an FBT year, you may need to work out how many kilometres the car would have travelled if you had owned or leased it for the whole year.

    For example, where you acquire a car halfway through the year and the car travels 12,000 kilometres in the remaining 182 days of the year, this would give you an annual distance of 24,065 kilometres.

    You can use the following formula to calculate an annualised figure if you use the old statutory rates or the transitional rates:

    A x B ÷ C

    Where:

    • A = the number of whole kilometres travelled in the period during the year when you owned or leased the car
    • B = the number of days in the FBT year
    • C = the number of days in that period.

    Determining the number of days available for private use

    The statutory formula method is based on the number of days during the FBT year when the car is available for the employee's private use or is actually used by the employee for private purposes - for more information about private use, see section 7.1).

    Determining the employee contribution

    The amount that would otherwise be the taxable value of a car fringe benefit is reduced by the amount of any employee contribution.

    An employee contribution may be an amount paid either:

    • directly to you by the employee for use of the car - the employee contribution must be made from the employee's after-tax income and is included in your assessable income
    • by the employee to a third party for some of the car's operating costs (for example, fuel) and these contributions are not included in your assessable income.

    However, the employee must provide you with documentary evidence of the expenditure (for example, receipts or invoices). In the case of petrol and oil costs, a declaration from the employee is sufficient for this purpose and receipts are not required. The declaration must be in a form approved by the Commissioner. For the approved declaration, refer to Declarations.

    An employee contribution (other than a contribution of services as an employee) is treated as consideration for a taxable supply for GST purposes. Therefore, you have to pay GST on the supply. You reduce the taxable value of the fringe benefit by the GST-inclusive amount of the employee contribution.

    An employee contribution does not have any GST implications for you if either:

    • the contribution is made through payment of an amount by the employee for some of the car's operating costs (for example, fuel)
    • you are neither registered nor required to be registered for GST.

    In certain circumstances, journal entries in your accounts can be an employee contribution.

    Statutory formula method examples

    Example: Calculation using the old statutory rates

    An employer purchases a car for $30,000 (including GST) on 1 August 2009; however, it was only available for private use by the employee for 182 days from 1 October 2009 and:

    the car's base value is $30,000

    from 1 August 2009 to 31 March 2010 the car travelled 18,000 kilometres (the annualised kilometres for the full 2009-10 FBT year would be 27,037 (18,000 ÷ 243 × 365), so the relevant statutory percentage is 11%)

    the employee pays fuel costs of $1,000 and provides the employer with the necessary declaration.

    The taxable value of the car fringe benefit provided during the year would be:

    Taxable value = ((A × B × C) ÷ D) − E

    Where:

    A = the base value of the car

    B = the statutory percentage

    C = the number of days in the FBT year when the car was used or available for private use of employees

    D = the number of days in the FBT year (use 366 if a leap year)

    E = the employee contribution.

    Taxable value 

    =

    (($30,000 × 11% × 182) ÷365) − $1,000 = $645.47

     

    Example: Annualised kilometres

    From the period 1 April 2009 to 31 March 2010 an employer provides a car to two employees for private use and:

    • the car's base value is $30,000
    • the car is available to employee one for 183 days and employee two for 182 days
    • employee one travels 20,000 kilometres and employee two travels 7,000 kilometres (the annualised kilometres are 27,000, so the relevant statutory percentage is 11%).
    • Taxable value = (30,000 × 11% × 365÷365) = $3,300
    End of example
      Last modified: 15 May 2017QC 17818