Overview

The FBT liability of a vehicle can be eliminated if a Post-Tax Employee Contribution of the same value is made during the FBT year. This is useful for benefit vehicles as it removes obligation and administration from the Employer.

The Employee Contribution amount required to eliminate an FBT liability is the "Fringe Benefit" of the vehicle for the year. This can usually be viewed on the Contracts / FBT screen. If the Budget method of managing ECM is used, then the "Fringe Benefit" value is neutralised and is not shown if the ECM value is equal to, or larger than the "Fringe Benefit".

Employee Contribution budgets are intended for use on benefit vehicles only.

See also Employee Contribution (ECM).

Flags

The use of Employee Contributions must be supported by the Employer. The Clients / Quote Defaults screen contains an "ECM Flag" Check Box. When checked ON, the corresponding "Use ECM?" check box will default ON for related quotes.

If the Quotes / Contract check box "Use ECM?" is checked ON, the quote displays pre and post-tax contributions. This enables the Driver and Client to see the amounts that need to be deducted from the Driver's pay.

Calculation

The Post-Tax employee contribution amount is calculated by dividing the Annual Fringe Benefit (also known as Gross Taxable Value) by Pay Cycles per year (e.g. Monthly = 12, Fortnightly = 26).

This calculation will be correct for a full FBT year, but the true Post-Tax deduction can be different in the first and last year of a lease because of timing issues. Using a deferment will amplify the difference. The Post-Tax deduction should be reviewed when the vehicle's delivery date is known.

Acceptance and Settling

If an accepted quote has "Use ECM?" checked ON, then the Contracts / FBT field "ECM Flag?" becomes checked ON. This can then be used to identify and manage vehicles where ECM applies.

When Accepting or Settling a quote, you can edit the Quote Budgets to include the ECM and ECMC amount so that they copy into the Contract's Budget values. Do this if you use the quote document as the sign-off point for the Employer to authorise ECM.

Alternatively, you can print a Payroll Advice form from the Contracts/Finance screen and add the ECM and ECMC amounts into the Contracts / Lease screen at that stage.

Managing and Reporting ECM

There are two approaches you can take to managing ECM: events, budgets, or a mixture of both.

Event and budget contributions (for the relevant FBT year) are added together in the Employee Contribution column of FBT reports and in the "Employee Contribution" field of the Contracts / FBT screen. This means you are able to use either or a mixture to create your own FBT workflow.

Budgets

For contracts utilising ECM, you can allocate a lease budget EmployeeContribution (ECM), a debit amount, and also ECM Clearing (ECMC), a credit amount, on the Contracts / Lease screen when setting up the contract.

The ECM budget amount is used to calculate the budgeted and actual ECM on the FBT screen and also on Novated Driver and FBT reports. Pro-rata of the ECM may be required in the first and last month of the lease.

The ECMC budget amount reverses the accounting effect of ECM, i.e. there is no contribution value on your client invoices. This assumes your client is accounting for ECM (as advised on the Quote pdf and the Payroll form).

The ECM amount (including GST) that has been billed in the quarter will added to the Novated Driver and FBT reports and will be allocated to the Driver who was allocated to the vehicle on the invoice date.

If you have a surplus contribution in one FBT year, you can move it to the next year by adjusting the ECM and ECMC budgets that will be billed in each FBT year to process a positive and negative value.

Example: The monthly EmployeeContribution value is $276.16 and I have a budget surplus of $53.10 in the 2011 FBT year.

• Billing Period 5 - 1/3/2011 EmployeeContribution: $276.16 - $53.10 = $223.06

• Billing Period 6 - 1/4/2011 EmployeeContribution: $276.16 + $53.10 = $329.26

Advantages: Creating a budget is "set and forget".

Disadvantages: Unless a FBT reporting reconciliation and adjustment process is performed during FBT year-end, using budgets relies on the employer adhering to the deduction amounts advised in the quote and budget adjustment forms.

Events

To create an ECM event

• Go to the the Contract / Event tab and create a new 'EmployeeContribution' event.

• "Date" - enter the contribution date.

• "Amount" - populate with the amount of the contribution.

Actual Contributions (Employer Listing)

Liaise with your employer to get a list of the actual value of contributions that have been deducted from each driver's pay in the FBT year or quarter. Either enter these amounts into the system or create and upload a bulk file for the entries.

Actual Contributions (Ad-Hoc)

Ad-hoc employee contributions can be entered directly on behalf of drivers electing to pay vehicle expenses directly and treat them as ECM.

The date of the event governs which FBT quarter or year the ECM amount will show in. You can have multiple event records within each quarter or year. The ECM amount will be allocated to the driver who was allocated to the vehicle on the event date.

Events Overs/Unders

If you have a surplus contribution in one FBT year, you can move it to the next year by processing a positive and negative event.

Example: If I want to move a surplus contribution of $53.10 for the 2011 FBT year to the 2012 FBT year:

• 31/03/2011 EC -$53.10

• 01/04/2011 EC $53.10

Surplus transfers are not detailed on the ATO website. Seek independent tax advice on using this transaction.

Advantages: Contribution transactions are visible on the Events and FBT screen and are usually actual values confirmed with an employer. Making adjustments is easier.

Disadvantages: It requires more administrative processing during the FBT reporting period.

Events Overs/Unders (Bulk)

If your contract is on track to collect the right amount of ECM over its term, you can use ECM Events to transfer overs/unders between FBT Years.

Do the following:

• Create an upload file

• For each affected contract:

  • Create an entry for the current FBT Year (e.g. dated 31/03/2023) that contains the under/over amount as the event_amount

  • Create a reversing entry for the next FBT Year (e.g. dated 01/04/2023) for the reversal

• The total upload for the file should be 0

Example:

Suspended Vehicles

If the vehicle is suspended during the FBT year, the final ECM event must be dated on or before the suspend date.

Employee Contribution ECM

If enabled, budget amounts for ECM and ECMC can be calculated and added to your novated lease quotes.

Open the Employee Contribution (ECM) calculations.xlsx file to see the calculation details.

This feature is not available in related APIs just yet.

Contracts and FBT Reports

Like other budgets, the ECM and ECMC budgets are populated into accepted contracts. The ECM budget covers the amount required for the lease term, but will not align for each FBT year.

If you want to align FBT Reports to zero out the ECM amount, you will need to create ECM events, or budget adjustments to shuffle the ECM between FBT years.

See also the Employee Contributions page for more details on this topic.

Business Rules

In order to populate these quote budgets, following conditions must be met:

• Setup / Reference Data - gb_controls for 'leaseecmcreatebudgets' is 'yes'

• Contract Types / Details "Group" = 'Novated'

• Contract Types / Accruals "Class" - includes records for 'ECM' and 'ECMC'

• Contract Types / Accruals "G" - records for 'ECM' and 'ECMC' are both set as 'Y' or 'N'.

• Quotes / Contract "FBT Type" is either 'Statutory' or 'Operating'

• Quotes / Contract "Use ECM?" is checked

• Quotes / Contract "FBT Treatment Type" = 'Standard'

Calculation Notes

• ECM is calculated as a positive amount

• ECMC is calculated as a matching negative amount

GST

• Contract Types / Accruals "G" - if set to 'Y' the ECM and ECMC budget GST is calculated

• Contract Types / Accruals "G" - if set to 'N' the ECM and ECMC budget GST is set to '0.00'.

• Contract Types / Accruals "G" - if the the ECM and ECMC classes have difference settings, you will see a Validation Alert and the quote cannot be saved until this is changed.

Periods Deferred

The calculated monthly ECM will be higher when the contract's billings will be shortened by a deferral.

This will happen in the following conditions:

• Clients / Contract Defaults "Budget Term Deferred" flag = yes

• Quotes / Finance "Months Deferred" is not zero

Global Controls

Setup / Reference Data - gb_controls