FBT
Statutory formula method
The statutory formula method values a car fringe benefit using the car's base value multiplied by a fixed statutory fraction, reduced for days not available and employee contributions.
The statutory formula method is one of two ways to work out the taxable value of a car fringe benefit. It is based on the cost of the car rather than on its running costs, which makes it simpler for employers who do not wish to keep a logbook. The formula multiplies the base value of the car by a statutory fraction, then multiplies by the number of days in the FBT year that the car was available for private use and divides by the number of days in the year.
The base value is generally the cost of the car, including GST and any options, but excluding stamp duty and registration, and the base value is reduced after a car has been held for a certain period. The statutory fraction is set by legislation. In the past there were different fractions depending on distance travelled, but a single flat fraction now applies for new arrangements, so employers should check ato.gov.au for the current fraction and any transitional rules.
The result can be reduced by any employee contributions, which are payments by the employee towards the cost of the car, such as the lease payments or running costs they pay from after-tax money. If the employee contributes enough, the taxable value may fall to nil. The employer needs records of the payments and should make sure they are paid in the right FBT year to count.
Employers choose between the statutory formula method and the operating cost method when they work out the taxable value for the year. The statutory formula method suits cars used mainly for private purposes, since it does not depend on business use. For cars with significant business use, the operating cost method may produce a lower taxable value, but requires a logbook and careful records of costs. Because the choice can be made each year, an employer should compare both.
GST affects the calculation in two ways. If the employer purchases the car and claims GST credits on the purchase, subject to the car limit, then the higher gross-up rate applies. The car limit is the amount set each year above which credits are capped, so the limit also affects expensive cars. The luxury car tax can apply on top for cars over a threshold, which is a separate tax with its own rules.
A common misunderstanding is that the statutory formula method always gives a better result because it is simpler. It can result in a higher taxable value if the car is used mainly for work. Another mistake is to use the wrong base value or to forget to update the days available when the car was out of service or sold during the year.
This is general information only, so confirm your calculation with the ATO or a registered tax professional.
Worked example
A car with a base value of $50,000 is available to an employee for 365 days. Using an illustrative statutory fraction of 20%, which must be checked against the current legislated figure, the taxable value is $50,000 x 20% x 365/365 = $10,000. If the employee contributes $3,000 from after-tax pay, the taxable value falls to $7,000 before the gross-up and FBT rate are applied.
Practical tips
- Check the current statutory fraction and base value rules on ato.gov.au, as they have been changed by legislation.
- Record the number of days the car was available, including any days it was unavailable due to repairs or sale.
- Compare with the operating cost method each year if the car has significant business use.