Interprac Fleet

Fringe Benefits Tax

What is a Fringe Benefit Tax (FBT)?

BT is a business based tax charged on fringe benefits provided by an employee or associate and Novated lease vehicles are a Fringe Benefit. FBT is fully recoverable from the employee’s salary. The Salary Package works in harmony with fringe benefit and income tax legislation maximising the tax advantage received by the employee while minimising the administrative impact for the employer.

How is FBT calculated?

There are two methods of calculating FBT value (FBT is derived from the FBT value) for motor vehicles. These two methods are the Statutory and Operating Cost methods.

Statutory Method - The statutory method of calculating FBT is used by individuals with little or no business usage. To find the FBT value using the statutory method multiply the FBT Base Value of the vehicle (on road cost less state charges (registration, CTP and stamp duty)) by the statutory percentage applicable on the kilometres travelled in the FBT year, table below:

Operating Cost Method - The operating cost method is used by individuals with high levels of business usage.

To find the FBT value using the operating cost method, multiply the personal use percentage (100% less the business usage %) of the vehicle by the GST inclusive cost of the lease and running costs.

An example of calculating the fringe benefit value using the operating cost method for a vehicle with an annual lease cost of $15,000 pa and 15% personal use.

To qualify for days not in use, the vehicle is required to be surrendered to your employer and keys handed to them for safe keeping, i.e. when going on a holiday. A declaration is required to be completed.

Alleviating the FBT Liability - Once the FBT value has been calculated the employer needs to alleviate the associated FBT liability. This is done via one of two ways, the Employee Contributions Method (ECM) or by the FBT Payable Method.

Employee Contribution Method (ECM) - The Employee Contribution Method is recognised as providing the greatest benefit for employees who are earning less than $180,000. it is also the simplest for Employers to administer. As the traditional FBT method uses the top marginal tax rate of 46.5% within its calculation, utilising the employee contribution method allows the employee to be taxed at their actual marginal tax rate further increasing tax savings.

To alleviate the Employers FBT liability, simply deduct part of the lease costs equal to the FBT value from the employee's post-tax salary. This reduces the business' FBT liability to zero.

FBT Payable Method - The FBT payable method is the more traditional method of dealing with a company's car however the FBT method is rarely used on a novated lease. To recover the applicable FBT liability, simply deduct the FBT amount displayed on the Payroll Advice from the Employees pre-tax income.