• Determining total operating costs

    For this particular purpose, the operating costs of a car include some:

    • actual costs
    • some deemed costs (that is, certain costs that are considered to have been incurred even if they have not been).

    Therefore, these total operating costs are different from those relevant for income tax purposes and include GST as appropriate.

    Actual operating costs

    The actual operating costs (including GST) are those expenses incurred for:

    • repairs, but not crash repair expenses met by an insurance company or another person legally responsible for the damage to the car
    • maintenance
    • fuel
    • registration and insurance (that is, the registration and insurance charges for the year or part of the year you used the car to provide fringe benefits)
    • leasing costs, if you lease rather than own the car (that is, the leasing costs of the car for the year or part of the year you used it to provide fringe benefits).

    You include operating costs paid by someone else (for example, an employee or associate) when calculating total operating costs of a car in a year. As already noted, an exception to this rule is that any crash repair expenses met by an insurance company or other person legally responsible for the damage to the car are not included in total operating costs.

    Deemed operating costs

    Deemed operating costs are those expenses deemed to be incurred for depreciation and interest.

    Attention

    Deemed costs are relevant only if the car is owned, rather than leased. A car under hire purchase is considered to be owned by the hirer from the start of the hire purchase agreement.

    End of attention
    Depreciation

    You calculate deemed depreciation by multiplying the depreciated value of the car at the start of the FBT year by the deemed depreciation rate that applied at the time the car was purchased. If you did not use the car to provide fringe benefits for the full year, apportion the depreciation to reflect the period it was so used.

    The depreciated value of a car for the year in which it is acquired is the cost price, including the cost of non-business accessories. The cost price includes GST and luxury car tax as appropriate.

    You include dealer 'delivery' charges (including GST) in the cost of the car, but not registration and stamp duty charges.

    In a subsequent year, the depreciated value of a car is the cost of the car, reduced by the deemed depreciation over the period of ownership. You calculate this using the deemed depreciation rate in force at the time you purchased the car.

    You also include deemed depreciation on non-business accessories fitted to the car after its purchase. An example of a business accessory is a two-way radio in a salesman's car, while alloy wheels and seat covers are non-business accessories.

    You calculate deemed depreciation on this basis regardless of how you treat depreciation for income tax purposes.

    Attention

    The income tax depreciation cost limit does not apply for FBT purposes.

    End of attention
    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.

    Attention

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

    For more information about the cost price of a car, refer to Taxation Ruling TR 2011/3.

    End of attention
    Change to depreciation rate

    The FBT legislation reflects the change in effective life of cars for income tax purposes from 6.66 years to 8 years. This means that a different deemed depreciation rate applies to cars acquired on or after 1 July 2002.

    The FBT legislation has been updated to reflect the income tax diminishing value capital allowance figure for the 2008-09 FBT year onwards.

    From 1 April 2008, the depreciation rate for cars acquired on or after 10 May 2006 is 25%.

    The deemed depreciation rate changed from 1 April 2008 (the FBT year ending 31 March 2009) onwards as follows:

    Date car purchased

    FBT year ending
    31 March 2008
    (previous rates)

    FBT year ending
    31 March 2009
    and future years
    (current rates)

    Up to and including 30 June 2002

    22.5%

    22.5%

    From 1 July 2002 to 9 May 2006

    18.75%

    18.75%

    On or after 10 May 2006

    18.75%

    25%

    Interest

    You calculate deemed interest by multiplying the depreciated value of the car by the statutory interest rate. The statutory interest rate is published annually in a taxation determination and is also in the annual FBT return form instructions.

    You calculate deemed interest on this basis regardless of any actual interest costs associated with purchasing the car. If you do not use the car to provide fringe benefits for the full year, apportion the amount of interest to reflect the period it is so used.

    You also include deemed interest on non-business accessories fitted to the car after its purchase.

      Last modified: 08 May 2012QC 17818