FAQ: What is the Employee Contribution Method (ECM) of calculating Fringe Benefits Tax (FBT)?
What is the Employee Contribution Method (ECM) of calculating Fringe Benefits Tax (FBT), and how does it work?
The Employee Contribution Method (ECM) of calculating Fringe Benefits Tax (FBT) is used to allow employees to partly or completely pay vehicle costs using post-tax contributions. Employee contributions made in post-tax dollars can be used to reduce the FBT Taxable Value, and the associated FBT Liability.
Post-tax contributions can be used to reduce, or even eliminate, your FBT Liability. As FBT Liability is calculated using the top tax rate, this method may be more tax effective for employees with a taxable income that falls outside of the top tax rate.
The FBT Taxable Value is calculated as follows:
FBT Taxable Value = FBT Capital Value* x Statutory Percentage** x (Number of days in the FBT year the vehicle is available for use / 365)*** - Employee Contribution
* Vehicle price less on-road costs
** In the 2011/12 budget the Federal Government changed the statutory percentage for calculating FBT, replacing the sliding scale statutory rates with the single rate of 20 percent. This reform applies to new vehicle contracts entered into after 7.30pm (AEST) on Monday 10 May 2011, and will be phased in from 2011 to 2014 as follows:
Table 1: Statutory Percentages Kilometres travelled during the FBT year (1 April - 31 March) Statutory Percentage Existing contracts New Contracts entered into after 7.30pm 10 May 2011 1 April 2012 1 April 2013 1 April 2014 Less than 15,000km per annum 26%
20% 20% 20% 15,000 km to 24,999km per annum 20% 20% 20% 20% 20% 25,000 km to 40,000 km per annum 11% 14% 17% 20% 20% More than 40,000 km per annum 7% 10% 13% 17% 20%
*** Full year availability assumed - 365 days
The FBT Liability is then determined using the FBT Taxable Value:
FBT Liability = FBT Taxable Value x Gross Up Factor (2.0647) X FBT Rate (46.5%)
If your Novated Lease begins or ends part-way through an FBT year, the Statutory Percentage is based on the kilometres you would've travelled if your driving patterns had remained the same throughout the year, and the FBT Liability is calculated as a pro-rata amount.
To see how the Employee Contribution Method works in practice, click here to get an instant online Fully Maintained Novated Lease quote (including breakdown of pre-tax and post-tax employee contributions).