• Statutory formula method

    The statutory formula method applies a formula in calculating the taxable value of a car fringe benefit:

    Taxable value

    =

    (A x B x 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 by employees (private use days)

    D =

    the number of days in the FBT year (365 or 366 in a leap year)

    E =

    the employee contribution

    Base value

    The base value of a car is generally the price paid for the car by the owner/lessor, including dealer delivery charges and any accessories not required for business use. The base value does not include registration or stamp duty charges. Where the car has previously been held by an associated entity, the base value will be determined by the amount paid when the car was first held by the associated entity.

    The base value may be reduced by one third in the FBT year that commences after the fourth anniversary of the date on which the car was first owned or leased by the provider, or an associated entity.

    Certain Australian Government entities are associates. Therefore, if an employee transfers a novated lease between Australian Government employers that are associates, the base value of the car is the value at the earliest date it was held by any Australian Government employer. If an employee transfers a novated lease to an Australian Government entity from an entity that is not an associate of an Australian Government entity (for example, a private sector entity) the base value of the car is the market value at the time of transfer. Australian Government entities will need to obtain a market value of the car as at the date the car is first provided by them (usually the date the employee commences employment).

    Statutory percentage

    The statutory percentage depends on the number of kilometres travelled during the FBT year. If a car is owned or leased for only part of the FBT year, the statutory percentage is based on the annual equivalent of the kilometres travelled.

    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 prior to 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:

    Existing contracts

    Total kms
    travelled in
    FBT year

    Statutory %

    0 - 14,999

    26

    15,000 - 24.999

    20

    25,000 - 40,000

    11

    Over 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:

    Total kms
    travelled in
    FBT year

    Statutory %

    From
    10 May 2011

    From
    1 April 2012

    From
    1 April 2013

    From
    1 April 2014

    0 - 14,999

    20

    20

    20

    20

    15,000 - 25,000

    20

    20

    20

    20

    25,000 - 40,000

    14

    17

    20

    20

    Over 40,000

    10

    13

    17

    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.

    Annualising kilometres

    Where a car is only held by an entity for part of a FBT year, such as the year of acquisition, the year of disposal or the year that a novated lease reverts to the employee, it is necessary to calculate the annual equivalent of kilometres travelled in that FBT year.

    The annual equivalent of kilometres travelled in that FBT year is calculated as:

    Actual kilometres travelled during
       the period held in the FBT year   

    Days held in the FBT year

    x

    365 *

    * or 366 in a leap year.

    To determine the annual equivalent of kilometres travelled, entities must know the date that the car was first held by that entity.

    The period that a car was held by an entity can have a significant impact on the annualised kilometres and the statutory fraction that applies to a car fringe benefit. For example, if a car was held by an employer from 15 March and the car travelled 1,000km before FBT year end (31 March), the annualised kilometres are 21,470, resulting in a statutory percentage of 20%. If instead the car was not held until 20 March, the annualised kilometres are 30,416, resulting in a statutory fraction of 11%.

    Where an employee salary packages a car, the following steps generally occur:

    • the employee orders the car
    • the fleet provider prepares the leasing documentation
    • the employer signs the lease
    • the employee signs the lease
    • the fleet provider signs the lease
    • the employee collects the car from the dealer
    • the salary packaging provider commences the packaging process.

    In this situation, the car is generally held by the employer from the date that the employee collects the car from the dealer.

    If the documentation is not signed before the employee collects the car, the date that the car is held by the entity can become unclear because the car may not legally be held by the entity at the date it is collected from the dealer.

    Better practice is to ensure that all parties have signed the leasing documentation before the car is made available for use by the employee. That way the start date for annualising kilometres is the date that the employee collects the car.

    Employees should be advised that it is in their interest to note the start date, monitor the kilometres they have travelled in the car and adjust their FBT contributions accordingly.

    Private use days

    When calculating the taxable value of a car fringe benefit using the statutory formula method, details of the number of private use days are required. Private use days can be reduced by the days that the car was not available for private use. To be counted as a day when the car is not available for private use, there must have been no actual or deemed private use on that day, with a day commencing and ending at midnight.

    Attention

    For the purpose of applying the statutory formula method, situations where a car is taken not to be available for private use include:

    • days when the car is at the smash repairer being repaired following an accident (other than the day when the car is driven to be repaired and the day when the car is driven home)
    • days when the car is parked at the business premises (other than the day when the car is driven from the employee's home or sleeping accommodation to the business premises and the day when the car is driven from the business premises to the employee's home or sleeping accommodation).

    For the purpose of applying the statutory formula method, situations where a car is taken to be available for private use include:

    • days when the car is garaged at the employee's home or other sleeping accommodation
    • days when the car is parked at the airport or a place other than the employer's business premises and the employee has custody and control of the car (for example, the employee or employee's associate has the keys).
    End of attention

    Entities are responsible for calculating private use days. To help meet this requirement, entities should ask employees to substantiate days that the car was not available for private use. For example, employees could be asked to provide a copy of a repair invoice showing the dates that the car was being repaired and, therefore, not available for private use.

    Attention

    When using the statutory formula method for calculating car fringe benefits, any actual or deemed private use on a day makes that day a private use day. For example, if a fleet vehicle is returned in the afternoon and a new one collected, the travel from home in the morning counts as a private use day for vehicle 1 and the travel home in the evening counts as a private day for vehicle 2. As a result, there can be more private use days in a FBT year than there are days in the FBT year. To reduce the FBT liability, fleet cars could be returned one day and, if convenient, the new car collected the next day.

    End of attention
    Employee contribution

    The employee contribution is any after tax contribution made by the employee. This includes direct contributions made by the employee to the entity as well as any substantiated payments made by the employee to a third party in respect of the car, such as the payment of petrol, cleaning or repair expenses, where such expenses are not reimbursed by the entity.

    Employees should be required to provide documentation, such as receipts, to evidence payments they have made to third parties except in the case of fuel and oil when a fuel and oil declaration can be provided.

    Attention

    Employee contributions made directly to the entity are considered payments of consideration for GST purposes and the entity must record the amount in its business activity statement (BAS) and remit one eleventh of the contribution as GST.

    End of attention
      Last modified: 17 Jul 2012QC 21998