FAQ
Fringe Benefits Tax
What is Fringe Benefits Tax (FBT)?
Fringe Benefits Tax (FBT) is a tax paid on certain benefits employers provide to their employees or their employees' associates. FBT is separate from income tax and is based on the taxable value of the various fringe benefits provided.
The FBT year runs from 1 April to 31 March.
For motor vehicles, FBT can be calculated using either the Statutory Method or the Operating Cost Method.
What are the fundamentals of each method?
There is no doubt the Statutory formula method is the most commonly used method for calculating FBT payable in relation to a car fringe benefit. Recently released ATO information reveals that the Statutory formula method is used for calculating FBT in relation to more than 80% of all car fringe benefits. It appears the popularity of the Statutory formula method can be attributed to the following issues:
- Concessional valuation rules assume that the business use percentage of a car increases as the number of kilometres it travels increase. Under this method, the taxable value of a car reduces as the number of kilometres travelled by the car increase, regardless of whether the car is used for business or private purposes; and
- Significant record keeping concessions apply under this method. Employers are simply required to produce evidence on the base value of a car and the opening and closing kilometres of the car for the FBT year. There is no requirement under this method to maintain a log book of any description.
ATO statistics reveal that approximately 20% of all car fringe benefits provided by employers are valued under the Operating Cost method. Information collated by the ATO suggests that employers value a small percentage of cars under the Operating cost method for the following reasons:
- The record keeping requirements are very onerous. Employers using this method are required to obtain information on all car expenses incurred during the FBT year and they must also calculate deemed expenses, such as deemed depreciation and interest where the employer owns (or hire purchases) the car. In addition, the taxable value can only be reduced by the business use percentage where a valid log book has been maintained.
- This method often produces a higher taxable value for cars with a high private use. In practical terms, the taxable value of a car under the Operating cost method is limited to the private use percentage of car operating expenses. As such, the higher the private use of the car, the higher the taxable value for FBT purposes.
How is the taxable value calculated under the Statutory formula method?
The taxable value of a car fringe benefit under the Statutory formula method is basically determined by applying a statutory fraction (which varies according to the distance travelled by the car) to the base value (which is normally the purchase price) of the car, as per the following formula:
How is the taxable value calculated under the Operating Cost method?
The formula for calculating the taxable value of a car under the Operating cost method, under S.10(2) of the FBT Act, is as follows:
What are the Statutory percentages rates for FBT?
The table outlined below specifies the relevant statutory fractions relevant as from 7:30pm 10th May, 2011. Until, the transitional period expires when a single 20% fraction will apply to any and all kilometres travelled; the number of annualised kilometres travelled by a car during an FBT year determines what fraction is applied to the FBT calculation –
| Pre 10 May 2011 | From 10 May 2011 | From 1 April 2012 | From 1 April 2013 | From 1 April 2014 | |
| Less than 15,000 km | 26% | 20% | 20% | 20% | 20% |
| 15,000 km to 24,999 km | 20% | 20% | 20% | 20% | 20% |
| 25,000 km to 40,000 km | 11% | 14% | 17% | 20% | 20% |
| Over 40,000 km | 7% | 10% | 13% | 17% | 20% |
How does the 2011 Federal Budget Change Effect Me?
As noted above, from the 1st April 2014 a single statutory fraction of 20% will apply. This will have many positive outcomes for anyone considering a novated lease:
- For employees that travel less than 15,000 km per annum a novated lease is likely to become a more attractive option.
- Employees currently travelling between 15,000 and 25,000 will see no change to the benefit.
- For those employees that travel greater distances and often have higher operating costs, you will still enjoy the benefit of having those operating costs reimbursed through your pre-tax dollars.
- From the 1st April 2014, it will mean that the issue of having to drive 'unwanted' kilometres just to reach a FBT bracket will no longer apply.
- Note however, that until this time, the need to reach a specific bracket will still apply to those driving greater than 25,000 kilometers