What is FBT?
Fringe Benefits Tax (FBT) is applicable to all vehicles under a novated lease. There are two types of methods for calculating FBT on a motor vehicle, the statutory formula method and the operating cost method. The statutory method makes no distinction between private and business use. The Operating Cost method may be suitable where a high business usage is involved. Under the Employee Contribution Method an employee makes a post tax contribution towards the running costs of the vehicle to eliminate or reduce the FBT payable (where employer policy allows).
Using the Statutory Formula Method
((A x B) x C / D) - E
where:
A = the base value of the car
B = the statutory percentage
C = the number of days in the FBT year when the car was used or available
D = the number of days in the FBT year
E = the employee contribution
What is the base value of a vehicle? (A)
The base value of the vehicle is the purchase price paid by the employee including GST. The base value includes all accessories (for example, air-conditioning and car phone) but excludes registration and stamp duty costs.
What is the statutory fraction? (B)
The statutory fraction is based on the total annualised kilometres travelled by the vehicle as shown in the table below. If the vehicle is held for less than the full year (that is, purchased or sold during the year), the annualised kilometres are the total kilometres travelled during the period, multiplied by the number of days in the FBT year and divided by the number of the days held.).
Statutory Fraction | |
| Annualised number of whole kilometres | Statutory fraction |
| Less than 25,000 | 0.20 |
| 25,000 to 40,000 | 0.14 |
| More than 40,000 | 0.10 |
What do you mean by availability of the vehicle? (C)
The days on which the car fringe benefit is provided is calculated as the number of days the vehicle is available, or deemed available for private use.
A car is available or deemed available for private use if:
What is an FBT year? (D)
FBT is calculated based upon the FBT year which runs from 1st April to 31st March.
What is the employee contribution?(E)
A post-tax payment made by the employee towards the cost of the benefit reduces the taxable value. The payment must actually have been made within the current FBT year before it can be taken into account. The employee contribution includes any non-reimbursed payment of car expenses (registration, insurance, repairs, fuel etc.). In order to obtain this FBT reduction against liability, documentary evidence must be supplied ie fuel receipt for vehicle detailing the date, amount paid and supplier.
Who is eligible for a Novated Lease?
Any permanent employee who has the support of their employer for salary packaging.
Is there a choice of car with a Novated Lease?
Yes, new or second-hand.
How do you benefit?
You are able to meet the costs of paying for and running a vehicle using pre tax dollars.
How does it benefit the employer?
How many vehicles can be packaged?
More than one is acceptable based on your ability to service the monthly financial obligations and with your employer"s agreement.
What is the Residual Value and how is it determined?
The Residual Value (RV) is the amount of money you owe on the vehicle at the end of the finance term, this amount is fixed and is determined at the beginning of the lease. Please note, the RV attracts GST. The RV is usually expressed as a percentage of the "Amount Financed" and represents the amount that remains payable to the financier at the end of the Lease Term. The RV chosen must stay within guidelines determined by the Australian Tax Office and these vary depending on the Lease Term chosen. If the market value of the vehicle is less than the RV, the resultant shortfall will be your responsibility. Likewise, should the market value be more than the RV, the surplus shall be to your benefit.
What if the motor vehicle travels more or less than I estimated?
There will only be a difference in your FBT liability should you fall outside the travel band range (<25,000kms, 25-40,000kms, >40,0000) nominated by you at the beginning of the FBT year. Should you be within the range nominated, your FBT contribution is correct.
If you travel less kilometres than nominated (and lower than the band elected) you will incur an increased FBT liability.
If you travel more kilometres (and fall into a higher kilometre usage band than what you elected), your FBT liability will be reduced.
What happens if my work situation changes and I elect to move to another company?
If you leave your employment for whatever reason, the deed of novation terminates immediately and the employer no longer has an obligation to pay lease rentals. The obligation to pay - under the finance lease - then reverts to the employee. The employee then has one of three options available:
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