What is the Employee Contribution Method (ECM)?
The Employee Contribution Method (ECM) enables an employee to reduce their FBT liability by making post-tax contributions towards the operating costs of the vehicle. The recommended method is to contribute an amount equivalent to the Taxable Value of the vehicle thereby reducing the Taxable Value to zero. Providing the employee travels the nominated kilometres per annum, this reduces the FBT liability to zero. “Why would I make after tax payments towards my vehicle when salary packaging is supposed to reduce my gross salary so that I pay less income tax?” This is a common question. The simplest answer is that by making a payment after tax toward the running costs of the vehicle, the employee can reduce the rate of FBT from 46.5% to their own marginal income tax rate. This might be 30% or 41.5%. As a result, this can reduce the overall cost of salary packaging their vehicle and enhance the total tax benefits available to them. The Employee Contribution Method (ECM) can be applied to bot
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.
