ECM

What is the Employee Contribution Method (ECM)?

Any after tax contributions made by the employee towards the costs of running the vehicle reduces the fringe benefit by $1 for every $1 contributed. This is a tax effective way of packaging when your before tax package is lower than the highest marginal tax rate, because FBT is taxed at the highest rate.

• The employee's contribution may be an amount paid directly by the employee to the employer for use of the car.
• The employee may also make a contribution by paying for some of the car's operating costs (eg. fuel). Car expenses met by an employee can be applied as an employee contribution.

What is an example of the FBT calculation?

Example of FBT calculation using statutory formula method

Assume:

• The car is purchased by an employer for $30,000 (GST inclusive) on 1 October 2007 and that the car's base value is $30,000;
• For the whole period 1 October 2007 to 31 March 2007 (ie. 182 days) the car is available for private use by the employee who travels 15,000 kilometres. The projected total kilometres for the full 2007 - 2008 FBT year would be 30,082, with the result that the relevant statutory percentage is 11%;
• The employee pays fuel costs of $1,000 and provides the employer with the necessary declaration.

The taxable value of the car fringe benefit provided during the year would be:

Taxable value = (A x B x C) - E 
                                  D
Where A = the base value of the car, 
           B = the statutory percentage, 
           C = the number of days in the FBT year when the car was used or available for private use of employees,
           D = the number of days in the FBT year (use 366 days if a leap year), 
           E = the employee contribution.

$30,000 x 11% x (182/365) - $1,000 = $645.47
 

Grossed up value assuming type 1 = 2.0647 * $645.47 = $1,332.7019

Fringe Benefits Tax = 0.465 * $1,332.70= $619.7055

The Employee Contribution Method Process

As a respected provider in the leasing industry, we provide the required information to enable both employers and individuals to make informed leasing decisions. FleetPlus Novated recommends you seek independent professional taxation advice prior to committing to a Novated Lease.