Car Fringe Benefits: Maximising the Statutory Formula Method

Which car should you salary sacrifice to save FBT, where the statutory formula method is used? Also, how many cars can be salary sacrificed by one employee? All the answers in this nugget. 

Date published: 12 April 2021

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TRANSCRIPT

Maximising the Statutory Formula Method

Let's talk about cars, because cars are what I'd call the sexy fringe benefit. They're the one they're the benefit that accounts for most FBT collections, and that's the biggest opportunity that's going wanting, and I'll explain why in the second. Last stats I saw suggested that about eighty nine percent of cars subject to FBT are FBT-able on the statutory statutory formula. It encourages people to use a statutory formula rather than the logbook, so none of this twelve crazy twelve week calculation of use, of use of car.

Instead we go to the statutory formula. Now, statutory formula only works to get people into that net if there's a concession built in and in striking a taxable value of twenty percent of the capital cost of the car. What that effectively does is it implies a degree of income producing use even if there isn't any, so if I salary sacrifice a car and I don't use the car for work, if I used a statutory formula, I'm likely to get a tax advantage now does its parts and maybe, but I'm likely to that tax advantage could be several thousand dollars a year using the statutory formula.

It might be less if I used the car for work and I would otherwise have got a tax deduction for it. But if we start with the proposition that statutory formula is good, FBT in this respect is good salary sacrificing a car is good because I'm likely to be able to capture a tax saving. Then we say, Oh, Paul said the statutory formula has got this inbuilt concession in this 20% of capital cost calculation.

Part of the reason that there's a concession in there is that the FBT is calculated on the capital cost of the car, not on the running costs. Now that means that to be really tax efficient, we don't want any income producing use and we want a low capital cost car with high running costs. Now for all you climate change is out there and I'll include myself in there being a sensitive and caring sort of person and a family family person.

The low capital cost high running cost cars, they're fossil fuel cars the high capital cost, low running cost. They're the EVs (electric vehicles) and they're grossly tax inefficient compared with the fossil fuel cars. But it goes a step further because if we decide we want low capital cost high running cost cars, that's not the car driven by the primary breadwinner.

It's not the car driven by Paul It's the car in the driveway at the moment driven by Barbara, my wife, who works on a 0.6 basis as a medical scientist. So her taxable income is less than mine because in Australia, medical scientists get paid lousy money and she's employed on 0.6 basis. But we've described her car lower capital cost, higher running costs, because as cars come with warranty, money costs go up.

So drawing those streets together where the opportunity is going, wanting for a lot of our employees is even relatively younger employees. If they're buying relatively cheaper cars they can be a very significant saving move, and the admin can be made very, very simple. So in a nutshell, think about cars. Think about low capital cost, high running cost. Don't get hung up on the employee's car. The primary breadwinners car, think about the primary care givers car or when my daughters were at uni, think about a car for your daughter at uni. Lower capital cost, higher running costs. Because if you're providing your daughter with a five thousand dollar corolla, more parts fall off those and they're not covered by warranties, then if you're giving them a brand new three series, BMW, for instance. 

Not Limited to One Car

And one other thing to bear in mind, we're not limited to one car. So this question often comes up how many cars can I salary sacrifice? The answer is the most cars I've done was five that was for the CEO, his spouse and three daughters at uni. We only we only stopped at five cars because I only had three daughters, so there is no limit on the number of cars.