Executive Motor Vehicle Scheme

Part-time executives may access an executive motor vehicle under the scheme where the employer agrees. The vehicle cost to a part-time executive is not pro-rated. If a vehicle is made available to a part-time executive, they are expected to meet the full costs from their remuneration package.

An employer may allow the use of an executive motor vehicle to a non-executive who is undertaking an executive role on a short-term temporary assignment. No deductions are made for the temporary vehicle use for the period of the assignment.

An executive can access a motor vehicle solely for private use through a novated lease.

This arrangement is entered into with the agreement of the employer. The vehicle is arranged through a finance company and the employer facilitates the payments through a salary sacrificing arrangement. The executive bears all costs of the vehicle. If the executive’s employment ends, the arrangement continues between themself and the finance company. Your employer will have more information about this arrangement.

Note:

• The Government has a contract in place with providers of novated lease arrangements – refer to your employer.
• Car parking is not provided by the employer as part of a novated lease or for a privately owned vehicle.

Fringe benefits tax (FBT) is a tax incurred by employers when employees are provided with certain benefits in respect of their employment. Benefits provided through salary sacrificing and some reimbursements of expenses may incur FBT.

A fringe benefit is a benefit received by a person in respect to their employment. A benefit includes any right, privilege, service or facility.

A number of benefits can be exempt from FBT. Refer to the ATO for more information on exempt benefits.

For example, eligible electric cars and associated car expenses are exempt from Fringe Benefits Tax. See the ATO website for further information.

Executives

Executives must pay, from their TRP, any applicable FBT arising from their access to fringe benefits (e.g. certain vehicles provided under the Executive Vehicle Scheme or novated lease).

Executives must complete a FBT declaration form outlining the business use of any benefit that could be exempt from FBT.

Executives are advised to seek independent financial advice to assist their decision making for maximising their benefits. The ATO also has a number of publications on FBT that are useful.

Employers

Employers must:

• keep records of FBT liability;
• complete and lodge an annual FBT return with ATO by 21 May each year; and
• provide executives with a payment summary of the total taxable value of the fringe benefits received in an FBT year exceeding $2,000 (from 1 July 2007). The ATO uses the payment summary in income tests for a number of government benefits, e.g. Medicare Levy.

Employers can find more information about their FBT obligations from the ATO, in particular, the ATO publication Fringe benefits tax – a guide for employers.

The Vehicle Costing Methodology is used to calculate the cost of a motor vehicle in an executive’s total remuneration package. The cost is notional – it represents value to the employee rather than cost to the employer.

The Executive Vehicle Scheme is a non-salary benefit and may support attraction and retention of executives.

A costing calculator is available to assist you to apply the methodology.

The most up-to-date calculator must be used to apply the methodology when either:

• a new appointment is made, including existing executives moving to new positions at a different remuneration level or
• an executive vehicle is changed over.

Employer-leased ZEVs are currently exempt from FBT. This exemption is reflected in the calculator when an electric vehicle is selected from the drop-down menu under ‘running costs’. Please see the ATO website for further information.

When an executive chooses a ZEV, they have two options regarding vehicle charging. Similar to fuel cards for internal combustion engine vehicles (ICEVs), executives may opt to receive a charge card for use at commercial ZEV charging stations.

Alternatively, if an executive prefers to charge their vehicle at home, they may reduce their pre-tax contributions for the additional energy costs incurred by the executive, referred to as the Reduction in Contribution. If this option is chosen, the Methodology calculates the Reduction in Contribution, and the figure is subtracted from the annual cost to the executive. This means the executive is not paying twice to charge their vehicle.

Workplace charging may be permitted where capacity exists, however executives who choose the Reduction in Contribution are not permitted to routinely charge at the employer’s charging facilities as the Reduction in Contribution is intended to offset verified home charging costs. Employers can provide guidance to executives based on their operational requirements.

Executives are encouraged to consider which option is most appropriate based on personal circumstances (e.g. access to commercial charging stations or home charging). Only one option may be selected.

Total Cost to Employee Package = (Cost of Vehicle (Formula No. 1) + Fringe Benefits Tax (Formula No. 2)) – Reduction in Contributions (Formula No. 3). Refer to the website for the vehicle costing calculator (link to Excel spreadsheet).

Formula No. 1 – Cost of Vehicle

Vehicle Cost = A + B + C

A = notional standing cost (registration and insurance) x private use percentage

B = notional standing cost (depreciation) x private use percentage

C = running cost x total annual kilometres x private use percentage

The notional value of registration and insurance is based on VicFleet data.

Depreciation captures the residual loss for the vehicle and is dependent on the vehicle purchase cost as well as the type of vehicle. The estimated depreciation is based on RACV data.

By assumption, the private use percentage is set to 2/3, and the total annual kilometres to 30,000. Both default figures can be adjusted if supported by appropriate justification. If the vehicle has a higher proportion of business use, the cost to the executive may be reduced. For a reduction in the private kilometre component, contact your fleet manager. The executive will be required to complete a logbook for three months. The revised figures can then be used for five years (in line with ATO rules). If the executive changes roles, they will need to complete a new logbook for another three months. Refer to the ATO website for more details on the logbook method

Running costs (fuel, tyres, servicing etc.) are based on RACV data, and vary according to the type of vehicle.

Formula No. 2 – Fringe Benefits Tax (if applicable)

Fringe benefits tax = (Purchase price including GST) x FBT rate x FBT gross-up factor x statutory distance rate

• Price is the Government purchase price of the vehicle (registration, stamp duty and cost of plates are not included).
• GST is the full invoiced amount by the manufacturer/dealer.
• The FBT rate is 0.47 (i.e. 47% expressed as a decimal) as per the ATO.
• The FBT gross-up factor is 1.8868 as per the ATO.
• The statutory distance rate is 0.20 (i.e. 20% expressed as a decimal) as per the ATO.

Formula No. 3 – Reduction in Contribution (if applicable)

Reduction in Contribution = Charging Rate x total annual kilometres.

The ATO has calculated the electricity costs incurred when a ZEV is charged at home, called the Home Charging Rate. The ATO calculated this as 4.20 cents per kilometre. Please see the ATO website for more information.