Calculating FBT Using the Statutory Formula Method for Providing a Car to an Employee

Introduction

Fringe Benefits Tax (FBT) is a tax that employers in Australia may need to pay on certain non-cash benefits provided to their employees. One common fringe benefit is the provision of a car for personal use. In this scenario, we will explore how Patti Smith, a sole trader, can calculate the FBT payable for providing a car to her employee, Tony, during the 2018-19 FBT year using the statutory formula method.

Background Information

Before delving into the calculation, let’s establish some key details:

Tony is an employee of Patti Smith.

Patti provides Tony with a car as part of his remuneration package.

Tony has to return the car to the office during leave and work-related interstate travel, unless he is using the car.

Tony maintained a logbook for the car.

The relevant odometer readings are 21,467 km on March 31, 2018, and 47,328 km on March 31, 2019.

The business kilometers traveled during the year were 16,856 km.

Costs associated with the car are as follows:

Fully maintained lease: $600 per month

Insurance and registration: $1,200

Petrol: $3,364

Market value of the car when the lease commenced: $25,000 (GST exclusive)

Patti is registered for GST and can claim GST on all costs incurred.

Calculating FBT Using the Statutory Formula Method

The statutory formula method is commonly used for calculating FBT on employer-provided cars. It involves a formula that takes into account the car’s cost, its business usage, and its statutory fraction.

Calculate the statutory fraction: To calculate the statutory fraction, we need to determine the car’s statutory value. The statutory value is the higher of the car’s cost price (including GST) and its market value when the lease commenced.

Statutory Value = Max(Car’s Cost Price, Market Value when Lease Commenced) Statutory Value = Max($25,000, $25,000) = $25,000

Next, we need to determine the statutory fraction, which is based on the car’s number of days available for private use in the FBT year.

Total Days in FBT Year = 365 days Private Use Days = Total Days – (Leave Days + Interstate Travel Days) Private Use Days = 365 – (35 + 27) = 303 days

Statutory Fraction = Private Use Days / Total Days Statutory Fraction = 303 / 365 ≈ 0.8301 (rounded to four decimal places)

Calculate the car’s taxable value: The taxable value of the car is calculated using the statutory formula, which is:

Taxable Value = Statutory Fraction x (Car’s Cost Price + Running Costs – Employee Contributions)

Running Costs include lease costs, insurance, registration, and fuel, all of which are inclusive of GST. However, Patti can claim GST credits for these costs.

Lease Costs = 12 x $600 = $7,200 (inclusive of GST) Insurance and Registration = $1,200 (inclusive of GST) Fuel (net of GST credits) = $3,364

Taxable Value = 0.8301 x ($25,000 + ($7,200 + $1,200 + $3,364) – 0) Taxable Value = 0.8301 x ($36,764)

Taxable Value ≈ $30,537.84 (rounded to two decimal places)

Calculate the FBT payable: FBT Payable = Taxable Value x FBT Rate

For the 2018-19 FBT year, the FBT rate was 47%.

FBT Payable = $30,537.84 x 0.47 FBT Payable ≈ $14,365.06 (rounded to two decimal places)

Conclusion

Using the statutory formula method, Patti Smith can calculate the FBT payable on the provision of the car to her employee, Tony, for the 2018-19 FBT year. The calculated FBT payable is approximately $14,365.06. It’s important to note that this calculation does not include any depreciation, and Patti can claim GST credits on the relevant costs associated with the car. Properly calculating and accounting for FBT is crucial for businesses to ensure compliance with tax regulations in Australia.