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. This calculator was updated in 2018 and will be updated at least annually (or whenever there is a material change in taxation arrangements). Refer to the VPSC website for the old and updated vehicle costing calculators (both downloadable Excel spreadsheets).
Transitional arrangements have been adopted to ensure consistent treatment of executives in specific circumstances outlined below. During the transition to the updated calculator please calculate the annual cost to the executive’s package as follows:
For executives who were employed prior to 10 October 2018 and who had an executive vehicle immediately prior to 10 October 2018 (applicable executives):
- Apply the old costing calculator for the duration of the existing lease.
- Upon commencing a new lease, apply the updated costing calculator.
- Apply an uplift to the executive’s TRP as outlined below.
For executives who were employed prior to 10 October 2018, who did not have a lease immediately prior to that date and who then took up a lease on or after 10 October 2018:
- Apply the old costing calculator up to and including 30 June 2019.
- Apply the updated costing calculator from 1 July 2019.
- Do not apply a TRP uplift.
For executives who commenced on or after 10 October 2018:
- Apply the updated costing calculator.
- Do not apply a TRP uplift.
Department Secretaries may use their discretion to consider any amendment to an executive’s TRP. As such, advice on how to address individual circumstances, including transition arrangements, should be sought from your Secretary in the first instance.
Moving forward 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.
- For applicable executives, upon the expiry of the existing lease agreement and on the basis that a new lease is entered in to, the executive’s Total Remuneration Package (TRP) should be increased by an amount no greater than the gap between their current contribution and the updated calculation for the same vehicle. Therefore if an executive selects a more expensive vehicle for their new lease the TRP uplift will be based on the arrangements for their existing vehicle and if they select a cheaper vehicle the uplift will be lower.
- If an applicable executive does not take up a new vehicle lease or returns a vehicle prior to the expiry of a lease, then no TRP adjustment is required.
Example TRP Uplift Calculation Methodology
Total annual cost to package
Total annual cost to package
|Current Vehicle||$12,000 (a)||$15,000 (b)||Maximum TRP uplift this executive can get is $3,000 (b – a)|
|New Vehicle||$15,000 (b) or higher (more expensive vehicle)||$3,000 – maximum TRP uplift|
|between $12,001 to $14,999||Receive a TRP uplift of the total annual cost to package of the new vehicle using the new calculator less the total annual cost to package of the current vehicle using the old calculator (e.g. if the new vehicle using a new calculator is $13,500 then the TRP uplift is $1,500 or $13,500 – $12,000).|
|$12,000 (a) or below||No uplift as the cost is equal to or below the total annual cost that is being paid by the executive of the current vehicle using the old calculator.|
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.