Operating cost method

The operating cost method involves applying a formula in calculating the taxable value of a car fringe benefit:

Taxable value = (A x B) - C


A =

the total operating costs

B =

the percentage of private use

C =

the employee contribution

Total operating costs

Total operating costs include:

  • repairs, but not smash repair expenses met by an insurance company or another person legally responsible for the damage to the car
  • maintenance
  • fuel
  • registration and insurance costs
  • leasing costs
  • deemed depreciation (for cars that are owned or under hire purchase)
  • deemed interest (for cars that are owned or under hire purchase).

The operating costs include all the operating costs for the car, whether incurred by the entity or someone else.

Further Information

For more on calculating operating costs, refer to Car fringe benefits.

End of further information
The percentage of private use

The percentage of private use is calculated as:

  B x 100%


A =

the estimate of private kilometres travelled during the period that the car was held by the entity (based on details recorded in a log book and odometer records)

B =

the total kilometres (both business and private) actually travelled by the car during the same period

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.


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

End of attention
    Last modified: 17 Jul 2012QC 21998