Quick 10 minute overview of the basics of car fringe benefits. I explain the

✔️ statutory formula method

✔️ the operating cost method

✔️ what a logbook looks like

✔️how the calculations all fit into the FBT return.

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Relevant external links:

FBT guide for employers (legal database version)
Sample logbook
FBT return 2021 form.

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TRANSCRIPT

Chapter 1 - Introduction

And so I'm going to give you a very quick and dirty snapshot on what car fringe benefits are all about. Hopefully then you'll understand the next video. Right? So this is not meant to be an entire dictionary on the car fringe benefits. It's just so that you can learn what the basics is and then just take it and go prepare a tax return straight away.

All right. So yeah, obviously if an employee gets a car that's paid for by work, that's a fringe benefit. Because it's non-cash, and so that's subject to FBT. And there are two ways of working out a car fringe benefit. One is to statutory formula method or what we call stat method. And the other way is operating cost method or op cost method.

And this is how it works. All right. So the first place you want to go to is the FBT guide for employers on the ATO website. And I like to use the legal database version because I find it just easier to navigate. So I will send you the link. Make sure I include the link in the resources area below.

So, you can see introduction, et cetera, but go straight to chapter seven, which is all about fringe benefits. And then, have a read in your own time, but what we're focusing on is the difference between stat method and op cost method and how to actually calculate the car fringe benefits under these two methods.

Chapter 2 - FBT payable 101

So the first thing that you need to know about FBT is that it is calculated based on a formula.

FBT payable, equals to taxable value times a particular gross up rate. There are two types and I'll explain that a bit later, but all you need to know now is that if it's type one, then it's GST inclusive means that it'll have a higher gross up rate of 2.08 or four or something. And if it's exclusive of GST, then it's a lower gross upgrade, which is 1.8. Something, something, the software we'll work it out for you.

And then you times 47%. So that's FBT payable in a nutshell. And so really the whole calculation of FBT comes down to what is the taxable value of that fringe benefit.

And that's where we're going to start with the stat formula method.

Chapter 3 - Statutory formula method

Stat formula method is very simple and doesn't require a lot of information. And that's why employers like to use it because yeah, there's no headache and there's much less substantiation requirements. And this is what the formula is all about.

So it is basically taxable value equals to the base value of the car which is like the cost of the car GST inclusive and includes a few other things, but basically it's the cost of the car. Times the applicable statutory rate. So it used to be all sorts of different, weird rates. And the more people drove around, the higher the odometer readings, the lower, the rate will be, which is why you might've found like some friends and families trying to drive the car out in March to, to reduce the FBT. All that is gone. And the there's only one flat statutory rate, which is 20%. Times the number of days that the car was available for use by the employee. And let's call it. I don't know. Let's say the car was available for use 365 days a year divided by the number of days in the FBT year. And that's it. But then you can, it can be reduced by employee contributions to bring down the taxable value and reduce the FBT so. Let's call the employee contributions and that's it. Now, you know how to calculate the statutory formula method. And I'll quickly show you as well, where it actually fits into the tax return.

Chapter 4 - Where do cars go in the FBT return?

So let's jump into a FBT return and you're not obviously, as you can just Google right. FBT return ATO. All right. So that's the FBT return. First two pages are basically business details. So you don't even have to really worry about them. Third page. You kind of need to get the information from page four.

So this is really the guts of the FBT return. Yeah. FBT return is only four pages. It's yeah, don't worry about it. It's not that complicated. Yeah. Most people are really worried about FBT but it's really easy. It's just, it's a substantiation and record keeping is what drives people nuts.

So anyway, getting back to cars, that's where it goes into. So you've got all these different fringe benefits starting from cars all the way to meal entertainment at the bottom. So we are looking at cars under the statutory formula method and you put in the number of cars. And then you would put in the gross taxable value, which we have calculated. And then the employee contribution, which is this item here at the end. So gross means without the employee contribution, by the way. And then there are no value reduction. So value reductions are more like if anything's like otherwise deductible which you might hear and we'll cover off in another video.

And then finally you get the net taxable value of the benefit and then how it fits into the FBT calculation is here. So you basically take all of the taxable values of type one and type two fringe benefits and because cars are GST inclusive, it's a type one that fringe benefit and you lump it all together, and chuck it into this 14 A here. And then you can see it, you times it by to 2.0802 to gross it up. And that gives you a certain number. And then you apply 47% to get you to your final FBT amount. Don't worry at all these items, 17 and 18, they are for special entities like not-for-profits, .Hospitals, and schools.

Oh gosh. That is like subject to a whole different lecture. Then you reduce it by your installment amounts to get to the final additional payment or credit that is due to the employer. Right. So that stat formula method. Let's move on to operating cost method.

Chapter 5 - Operating cost method

All right, operating cost method, as the name suggests, is working out the taxable value based on the cost of running the car. And so taxable value equals to all the operating costs of the car. And we'll go through that in a bit more detail, times, the private percentage of use, which can be worked out as, you know, a hundred percent minus business percentage. And then, you know, minus employee contributions. And operating costs are, is really everything that it costs to run the car from rego to insurance, fuel, what else? Repairs and maintenance. If the car is leased, at lease fees. But if the car is owned, then you would need to calculate a depreciation and interest on it.

And it depends, or and depreciation is based on the cost of the car. Which is GST inclusive. Yeah. Obviously, yeah, a lot more detail around this and you can find guidance on it in, in the ATO guide for employers. But this is really just a quick snapshot on how you calculate it. And really, as you can see the big thing that can potentially reduce the taxable value is the business percentage use of the car. And this is where lookbooks books come into play. So how would the employees substantiate how much business use the car has been through? By keeping a log book. So there are lots of rules around log books, you know. They have to be kept for at least 12 weeks. It has to be representative of the year that the employee has used the car.

Chapter 6 - Logbooks

And basically it looks something like this. So if you go into chapter four you will see a sample logbook record here. So yeah, it's not rocket science. You write the dates, start of the odometer end of the odometer reading. And then business versus private kilometers traveled and then, you know, purpose of the journey. That's what a logbook looks like. And then the employee basically adds up all the business kilometers. Yeah. So business kms divided by total kms to arrive at a business percentage use. And then that goes up here. And then that taxable value goes into the tax return.

Chapter 7 - Op cost cars in the FBT return

So let's go back to our tax return. And as you can see, let me make it a bit bigger, actually. Cars here under the operating cost method. Number of cars, gross taxable value without the employee contribution, then employee contribution and then taxable value. And then it goes up into to be aggregated with the other type one fringe benefits.

And then you arrive at your FBT. That my friends is a very quick and dirty snapshot on how to calculate car fringe benefits tax. You're welcome.

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