The "Employee Contribution Method" or ECM is a variation to the Statutory Formula Method.

The Statutory Formula Method is used for employees who are earning a wage at or above the top of the tax scale; eg $180,001 (2009).

However, for employees with a taxable income of less than $180,001 per annum, the ECM is used to calculate their FBT, because it provides a more tax-effective outcome.

When using ECM, some of the cost of your novated lease are deducted from your pre-tax salary and some from your after-tax salary.

The after-tax contribution reduces the taxable value of the car Fringe Benefit by the amount of the after-tax contribution.

So if you travelled the number of kilometres you nominated at the start of the lease, the after-tax contribution effectively negates the FBT.

Your employer deducts money from you in before-tax and after-tax dollars and nlc keeps track of the value of your after-tax contributions.

There is also no Reportable Fringe Benefit to be included on your Payment Summary at the end of the financial year.

Travel the Kilometres you nominate

With the Employee Contribution Method if you miss your nominated bracket you will have to pay more FBT.

By the end of the FBT year, in order for your after-tax contributions to exactly match the taxable value of the vehicle fringe benefit provided, you must have travelled enough kilometres to qualify for your nominated FBT bracket.

If you travel less kilometres than you nominated

If you travel less than expected during the FBT year, and you don't make your FBT bracket, there will be an FBT liability. You will not have salary-sacrificed enough funds to cover the additional amount of FBT payable. Therefore your employer will need to deduct extra funds from your salary.

If you travel more kilometers than you nominated

If you travel more than expected during the FBT year, you may move up an FBT bracket, if so, you will have contributed too much salary in after-tax dollars & reduced the tax effectiveness of packaging a vehicle. This does not mean you will be entitled to a refund at the end of the FBT year.

Please consult your company's salary packaging policy on how surplus post tax contributions are treated.