Big Ideas

Fringe Benefit Tax

Fringe Benefit Tax - the FBT basics

05 August 2018

If you provide non-cash perks to your employees, such as insurance, gym memberships, or work vehicles that are available for personal use, then you’re likely to be liable for FBT (Fringe Benefit Tax).

FBT is a tax you pay on most non-cash benefits you provide to your employees.The list of possible benefits that may require consideration is potentially endless. In practice, however, most non-cash benefits fall into one of these categories:

  • Insurance premiums

  • Motor vehicles

  • Subsidised transport

  • Staff vouchers

  • Offsite carparks

Common FBT mistakes

It is 2018 and buzzwords like ‘employee experience’ and ‘the future of work’ are bounced around board room tables in New Zealand and all over the globe. To build and maintain an advantage over the competition, businesses will strive to attract and retain talent through the deployment of innovative people strategies and clever design. Sometimes the devil is in the detail, so you’ll want to cover off every angle. Here’s a couple of FBT pitfalls to avoid:  

  1. Ignorance. If you find out you have FBT to pay after you've been giving taxable benefits for a while, you'll have to backdate your tax payments, which can result in a big bill.
  2. Flawed business cases. FBT can be expensive, so make sure you factor it in when working out the financial implications of benefits or incentives. It is possible that it could be more beneficial for the business to simply offer more paid leave, higher salaries, or regular bonuses instead.

Inland Revenue Focus

Given the importance in New Zealand of keeping your PAYE and GST record-keeping and payments in order, it might be tempting to think that Fringe Benefit Tax is a relatively minor thing. It isn’t and in 2017, Inland Revenue (IR) created a dedicated audit team to focus on the issue of non-compliance in this area.

One of IR’s aims is to ensure employers have the right business structures and documentation in place. And it turns out that many don’t.

If this sounds like you, now’s a good time to put things right. Regardless of whether you’re acting correctly or not around FBT, a lack of proper records leaves you in a weak position and liable to negotiated settlements (that is, having to pay more than you expected) or, worse, serious penalties. 

For small businesses, FBT mostly revolves around company vehicles, so let’s look at what IRD expect from you if you provide a vehicle to any of your staff:

  • The employee’s job description and employment contract

  • The company policy on motor vehicles

  • Any private use restriction letter in place, signed by the Directors and the employee

  • Documentation that shows regular checks on the vehicle to ensure it’s not being used for private matters

  • The employee’s performance review notes confirming they’re sticking to company policies.

 For an SME owner, that’s quite a daunting list and a good reason to talk to your accountant. An expert and independent set of eyes will help you determine what you need to do, what you don’t need to do, and also how to go about doing it.

The value of good accounting advice is heightened by some of the finer points of FBT legislation. For example, did you know that:  

  • if an employee takes a vehicle home one evening and returns to work with it the next morning, the law says it’s been available for private use on two days? 

  • IR expects you to check that employees are adhering to restricted use policies at least once every quarter?

  • Printing your company logo on the vehicle doesn’t automatically make it a work-related vehicle, which then means it doesn’t automatically become exempt from the usual requirements of FBT?

  • There is now a new option for some companies that have one or two vehicles to elect to use the motor vehicle expenditure rules rather than pay FBT in certain circumstances?

If you didn’t know all those things, we're not surprised! FBT is complex but the good news is that IRD recognises this and will work closely with you to help you comply. The best approach is to get professional advice from a chartered accountant (that’s us) and, where appropriate, go to IRD for a written opinion on any matters that aren’t crystal clear.

For more information about FBT, take a look at the Inland Revenue website and guides located here. Or if you want to talk it through, contact us today. 

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