Any items provided by your employer which are not in the form of your normal salary or wages are known as fringe benefits. Fringe Benefits Tax (FBT) is the tax payable on non-monetary benefits offered by your employer.
This guide has been provided as an overview of the taxation issues relating to our novated lease products. It is not intended as personal advice and does not take into account your personal circumstances.
A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.
The employer provided car is one of the few salary package items that continue to attract concessional taxation treatment. Fringe Benefits Tax (FBT) is a Federal Government tax imposed on employers on the value of certain fringe benefits that have been provided to employees (or to their associates) in respect of their employment. The FBT year runs from 1 April to the following 31 March.
All vehicles under a Novated Lease are subject to FBT using the Statutory Formula Method.
The statutory formula values employer provided cars for FBT purposes at a percentage of their initial cost, inclusive of GST but excluding registration and stamp duty.
The actual percentages for discounting the car’s value vary according to the total kilometres travelled each year. Kilometres travelled are annualised based on the actual usage in the period from 1 April to 31 March of each year.
The following table provides a guide to the standard FBT statutory formula percentages.
|Distance travelled per FBT year||Statutory Percentage (% of car's base value required from post-tax salary)|
|From 11 May 2011||From 1 April 2012||From 1 April 2013||From 1 April 2014|
|Less than 25,000 kms||20%||20%||20%||20%|
|25,000 - 40,000 kms||14%||17%||20%||20%|
|Over 40,000 kms||10%||13%||17%||20%|
Fringe Benefits Tax can be calculated as follows:
Taxable value = A x B x (C divided by D) - E
A = the base value of the car
B = the statutory percentage
C = number of days during the FBT year the car Fringe Benefit was provided
D = number of days in FBT year
E = the amount (if any) of the residual payment of employee contribution
Using this Taxable Value, the remainder of the Statutory Formula is applied as follows:
Fringe Benefits Tax = Taxable Value x Gross-up Factor x FBT Rate
Gross-up Factor = 2.0647
FBT Rate = 46.5%
All operating costs such as fuel, insurance, registration and servicing are not liable for FBT.
Any after tax salary payments made by the employee towards the cost of their car will reduce the FBT liability.
The Employee Contribution Method (ECM) 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.
How the Employee Contribution is calculated:
The FBT liability on a $30,000 car travelling 20,000 kms annually can be reduced to nil by making an Employee Contribution for an amount equal to the taxable value of the car.
The FBT liability is $4,931.51 but can be reduced to nil by an Employee Contribution of $6,600 ($30,000 x 0.20) = $6,000 plus 10% GST = $6,600.
The Goods and Services Tax (GST) applies to most costs associated with running a motor vehicle as part of a salary packaged arrangement.
In relation to a novated lease, GST will apply to both the purchase price of the vehicle and the lease payment. However, Input Tax Credits (ITC's) can be applied to offset the GST in certain circumstances.
Vehicle Purchase Price
The purchase price of the vehicle, (either new or used) will contain GST.
Whether the vehicle being financed is new or used, we can apply Input Tax Credits (ITC's) to off-set the GST on the purchase price. Therefore the amount you finance will be reduced by the amount of the tax credit.
Note: The maximum amount of ITC that can be applied to either a new or used vehicle is $5,182.64. Where the GST in the purchase price of the vehicle exceeds this $5,182.64, the employee will be required to finance the difference between the GST amount and the maximum available ITC ($5,182.64), in the novated lease agreement.
GST is charged on the monthly lease payment at a rate of 10%, and therefore the employee's contribution may be increased to meet the extra cost for GST. However, most employers are eligible for ITC's and pass these on to the employee, which results in the lease payment being GST free.
The residual value due at the expiry of a lease agreement will attract GST at the rate of 10%.
As the employee is not entitled to ITC's, and the employer cannot apply ITC's to the residual value on a novated lease, GST on the residual value is the responsibility of the employee.