About the Methodology
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 has a key role in the attraction and retention of executives.
When to Apply the Methodology
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 under the following circumstances:
- A new appointment is made, including existing executives moving to new positions at a different remuneration level.
- The total remuneration under a current executive contract is reviewed.
- An executive vehicle is changed over.
Fringe benefits tax exemption for electric vehicles
The Federal Government has introduced exemptions to fringe benefits tax for employer leased electric vehicles. Please see the following links for further context:
VPSC’s Executive Vehicle Cost-to-Package Calculator (the calculator) does not currently reflect this exemption.
To address this please overwrite the Annual Subtotal FBT cell (cell D26) in the calculator as $0 when an executive selects an eligible vehicle. Vehicle eligibility is to be determined by the user and can be guided by the ATO advice linked above.
Details of the Costing Methodology
Total Cost to Employee Package = Cost of Vehicle (Formula No. 1) + Fringe Benefits Tax (Formula No. 2) Refer to the VPSC website for the vehicle costing calculator (a downloadable 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
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.