A car fringe benefit could be levied on a vehicle owned or leased by an employer that is used privately by an employee.
For Fringe Benefit Tax reasons, a car is:
The grossed-up rule increases the value of the benefit so it is equivalent to the after-tax salary sacrificed amount and is taxed at the top marginal rate.
There are two regimes designed to calculate the applicable FBT for novated leased vehicles.
If the vehicle is made unavailable for private use for a certain amount of days per annum, the FBT liability is calculated on a pro-rata basis with the employee paying an FBT amount proportionate to the days the car was available, rather than the whole year. Strict guidelines set down by the ATO must be adhered to regarding exempt days, such as garaging the vehicle at your employer's premises under lock and key for a full 24- hour period.
Using the statutory fraction method, FBT is calculated as the capital cost of the car multiplied by the statutory fraction (see below) multiplied by the number of days in the year the car was available for use. This figure is then divided by the number of days in the FBT year.
Bryan's FBT is calculated as:
This means that the personal tax paid by the employee on the post-tax contribution is likely to be substantially less than the FBT rate, which is the maximum marginal tax rate.
Although this figure is included on your group certificate, it is not included in your total income amount and income tax is not levied on it. However, it is taken into account when certain other benefits and obligations are being determined such as Centrelink pensions.
*This is a fictitious example used to demonstrate FBT calculations.
For Fringe Benefit Tax reasons, a car is:
- a station wagon, sedan, panel van or ute (including four-wheel drive utes);
- any other goods-carrying vehicle that has a capacity to carry 1 tonne or less; or
- any other vehicle which is designed to carry less then nine passengers.
- used in fact by the employee for private use; or
- made available for private use by the employee, regardless of whether it is actually used.
FBT and novated leases
Fringe benefits tax also impacts upon vehicles leased by the employee by means of a novated lease and is calculated on the grossed-up value of the benefit.The grossed-up rule increases the value of the benefit so it is equivalent to the after-tax salary sacrificed amount and is taxed at the top marginal rate.
There are two regimes designed to calculate the applicable FBT for novated leased vehicles.
The Statutory Fraction method
Any FBT liability is determined on the total kilometres travelled in the FBT year regardless of whether they were for business or pleasure.If the vehicle is made unavailable for private use for a certain amount of days per annum, the FBT liability is calculated on a pro-rata basis with the employee paying an FBT amount proportionate to the days the car was available, rather than the whole year. Strict guidelines set down by the ATO must be adhered to regarding exempt days, such as garaging the vehicle at your employer's premises under lock and key for a full 24- hour period.
Using the statutory fraction method, FBT is calculated as the capital cost of the car multiplied by the statutory fraction (see below) multiplied by the number of days in the year the car was available for use. This figure is then divided by the number of days in the FBT year.
FBT kilometre statutory fractions
- Less than 15,000km travelled a year – 26% FBT liability = 0.26 statutory fraction
- 15,000 – 24,999km – 20% = 0.2 statutory fraction
- 25,000 – 40,000 – 11% = 0.11 statutory fraction
- Over 40,000km travelled in a year – 7% FBT liability = 0.07 statutory fraction.
Example
Bryan* has a car on a novated lease with a capital value of $30,000. He has travelled 23,000km during the FBT year and arranged for his car to be available for just 300 days of the year.Bryan's FBT is calculated as:
- (30,000 x 0.2 x 300) / 365 = $4931.51
Post tax contribution method
The contribution method allows the employee to reduce their FBT liability by making contributions towards the running costs of their car. These contributions must be deducted from their after-tax salary. Every dollar contributed reduces the FBT liability by a dollar up to the total amount of FBT payable. The maximum amount of contributions per year is equal to the capital cost of the vehicle multiplied by the statutory fraction, plus 10% GST.This means that the personal tax paid by the employee on the post-tax contribution is likely to be substantially less than the FBT rate, which is the maximum marginal tax rate.
Example
Bryan's FBT liability on his $30,000 vehicle could be deleted entirely by making post-tax contributions. Bryan's FBT liability is $4931.51 but he can make post-tax contributions of up to $6,600 (($30,000 x 0.2) = $6000 plus 10% GST = $6,600).Estimating kilometres for FBT
If you under-estimate kilometres to be travelled for the coming FBT year, you will be required to repay any shortfall incurred. Accurate estimations are vital. To calculate your estimated annualised kilometres record the following numbers approximately three months into the FBT year:- Actual kilometres travelled to date since leasing the vehicle.
- Number of days of current FBT year the vehicle has been held.
- Average daily kilometres: kilometres travelled divided by number of days.
- Annualised kilometres: average daily kilometres multiplied by the number of days in the FBT year.
FBT and your group certificate
Employers are required to record the grossed-up taxable value of any FBT paid in an FBT year (1 April – 31 March) on an employee's group certificate for the corresponding financial year (1 July – 30 June), as long as this value is greater than $1000.Although this figure is included on your group certificate, it is not included in your total income amount and income tax is not levied on it. However, it is taken into account when certain other benefits and obligations are being determined such as Centrelink pensions.
*This is a fictitious example used to demonstrate FBT calculations.
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