The Operating Cost Method of calculating FBT on cars, is based on a log book record of travel which establishes the business percentage of motor vehicle expenses.
The log book must be maintained for a continuous period of at least 12 weeks. Unless circumstances materially change, the same log book may be relied upon for 5 years before another 12-week period must be recorded.
Car expenses include:
- petrol and repairs
- deemed depreciation (if the car is owned)
- imputed interest (if the car is owned)
- lease costs (if the car is leased)
Employee contributions to expenses from after-tax income are deducted.
Fleet cars – ‘simplified’ log book method
The Tax Office has approved the use of a log book average business use percentage for fleets of at least 20 cars. To be able to use this ‘simplified’ method, valid log books must be maintained for at least 75% of the cars. Salary-sacrifice cars are excluded, and the gst-inclusive cost of each car (value at time of acquisition) must be within the luxury car limit.
There are a number of other qualifying conditions. For full details see Fleet Cars: simplified approach for calculating car fringe benefits PCG 2016/10
Operating cost formula for calculating the FBT value of a car fringe benefit:
Taxable value = [Total Vehicle Costs x Private Use Percentage ] – minus Employee Contributions
Total Vehicle Costs include deemed depreciation and interest as below.
From 1 April 2008, the deemed depreciation rate for cars acquired on or after 10 May 2006 is 25% calculated on a diminishing value basis.
The depreciation percentage rate to be used is the rate applicable in the year of the vehicle’s purchase.
Rates for earlier years are as follows:
|Date Car Purchased||Percentage Depreciation|
|Up to 30 June 2002||22.50%|
|1 July 2002 to 9 May 2006||18.75%|
|From 10 May 2006||25.00%|
- The cost for depreciation purposes is not subject to the luxury car cost limits.
- Depreciation is required to be calculated on a diminishing value basis.
Where loan interest is part of the operating costs of a car, the actual interest costs are ignored, and substituted by a deemed rate of interest which is adjusted and advised by the Tax Office annually in a Tax Determination.
(see the current FBT Benchmark Interest Rate here)
- Employee contributions are comprised of unreimbursed after-tax contributions made by the employee to the employer which can also be given effect to by journal entry (see ruling MT 2050). Such contributions are considered a taxable supply and require the employer to account for 1/11 of the amount as GST.
- Employee contributions may also comprise a declaration (in approved format) of fuel and oil costs and substantiated records (i.e. normally receipts) of other car expenses. Such payments are normally GST inclusive and are not a taxable supply.
- Australian Taxation Office – Operating Cost Method
- ATO – Fringe Benefits Tax Car Calculator
This page was last modified on 2021-05-16