The statutory formula method taxes a flat 20% of a car's value regardless of how much you actually use it for private purposes, while the operating cost method taxes only the private-use share of the car's real running costs — which means the method with the lower FBT bill depends entirely on how much business use the car gets.
How each method is calculated
Statutory formula method:
- Taxable value = car's base value × 20%
- No logbook required
- The 20% rate applies no matter what the car is actually used for — even a car used 95% for business still has 20% of its value taxed
Operating cost method:
- Taxable value = total operating costs for the year × private-use percentage
- Requires a valid logbook — 12 continuous weeks, representative of your usual travel pattern, renewed at least every five years — plus odometer readings
- The lower your logged private-use percentage, the lower the taxable value
Run either method with your own figures on the FBT & Novated Lease Calculator to see the taxable value and FBT payable side by side.
A worked comparison
Take a car with a $50,000 base value and $12,000 in total annual operating costs (fuel, servicing, insurance, registration, depreciation).
High business use (20% private, 80% business, logbook kept):
- Statutory: $50,000 × 20% = $10,000 taxable value
- Operating cost: $12,000 × 20% = $2,400 taxable value
- FBT payable at the Type 2 gross-up (1.8868) and 47% rate: $8,868 under statutory vs $2,128 under operating cost
- The operating cost method saves roughly $6,740 a year on this car
Mostly private use (90% private, 10% business):
- Statutory: still $10,000 taxable value — unchanged, because the statutory method ignores actual use
- Operating cost: $12,000 × 90% = $10,800 taxable value
- Here the statutory method is cheaper, by around $710 a year
Where the break-even sits
For this car, the two methods produce the same taxable value at a private-use percentage of $10,000 ÷ $12,000 = 83%. Below 83% private use, the operating cost method wins; above it, statutory wins. The break-even point moves with the car — it is roughly (base value × 20%) ÷ total operating costs, so a car with high running costs relative to its purchase price has a higher break-even, and vice versa.
Why most high-business-use vehicles use operating cost
Because the statutory rate is flat, it does not reward genuinely low private use — a tradie who drives their ute 95% for work still gets taxed on 20% of its value under statutory. The operating cost method is the only way to have the tax bill reflect the real private-use share, which is why it is almost always the better choice for vehicles with heavy, logged business use — provided the logbook is kept properly, since an invalid or missing logbook forces you back onto the (usually worse) statutory method by default.