Fringe Benefit Tax: Exemptions and Obligations

12 August 2019

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The fringe is in vogue at the IRD. The Inland Revenue Department now has a dedicated audit team focusing on Fringe Benefit Tax (FBT). If the IRD is taking FBT this seriously, then it’s a clear signal that you, as an employer, should be just as conscientious in knowing your rights, responsibilities, and opportunities, where this tax is concerned.

When are you liable for FBT?

All employers need to pay FBT on the fringe benefits they provide to their employees. In short, fringe benefits are any non-cash benefit you give to your employees. Typically they include:

  • Motor vehicles
  • Insurance premiums (like subsidised health insurance)
  • Subsidised transport (like bus or train tickets)
  • Subsidised or free goods or services from your business
  • Offsite car parks

The biggest of those benefits would be the provision of a motor vehicle to an employee. When it comes to FBT, there’s a world of difference between making a vehicle available for private use, and the actual private use. An employer will (probably) have to pay FBT if they make a motor vehicle available to an employee for their private use, even if there is no actual private use.

So, what if you, as an employer, ask an employee to take a company vehicle home at night and bring it back to work the next day? You guessed it. You’re likely to pay FBT as travel between an employee’s home and work is considered to be private use. Even if there’s no other travel in the vehicle outside of the work to home, and home to work routine, you’re (probably) liable for FBT. That said, there are options for mitigating the FBT liability – get in touch and we can discuss these in more detail.

The paper trail

Since FBT Compliance Audits began in 2017, the IRD has paid close attention to how businesses respond to their FBT obligations - particularly in terms of documentation. A lack of documentation has seen some companies have to negotiate settlements with the Inland Revenue Department, and this sort of arrangement is not cheap.

The IRD can reassess FBT returns going back four years. If you haven’t filed returns, penalties may apply. Obviously, those penalties will increase what you owe to the IRD over and above the FBT.

We’ve already looked at a company owned/ company leased vehicle being made available to an employee. Let’s use that scenario to highlight the documentation you might need to give to the IRD as part of their review process:

  • The employee’s job description
  • The employee’s employment contract
  • Company policy on motor vehicles
  • Any private use restriction letter in place signed by the Directors of the company and the respective employee
  • Support showing regular checks on the motor vehicle to ensure no private use is arising
  • Employees performance review notes which include comments on adherence to company policies

The Opportunity – Exemptions from FBT

You don’t have to pay FBT on everything – including vehicles in some circumstances.

Firstly, you’re exempt from paying FBT on motor vehicles for work-related business trips, the use of the vehicle for emergency calls, and for vehicles that qualify as work-related vehicles.

That said, the devil is in the detail with this exemption. Just because a vehicle is sign written with the employer’s name and/or logo, this doesn’t automatically make the vehicle a work-related motor vehicle.  Having the vehicle sign written is a requirement for a work-related vehicle, but there are a number of requirements you must meet before an exemption applies:

  • The vehicle must be sign written; and
  • Must not be a vehicle designed principally to carry passengers; and
  • For which private use is limited to travel between home and work as a requirement of the employee’s work or is otherwise incidental to the performance of employment duties

The biggest opportunity when it comes to FBT is giving your staff vouchers (or other small benefits). Vouchers given to your staff quarterly, for $300 or less, are not subject to FBT. Put another way, you buy your staff a $300 voucher – you get a $100 tax saving, you don’t pay FBT, and your staff don’t pay tax on the voucher.

Now as with motor vehicles, the devil is in the detail with this exemption. The vouchers must be given quarterly (you can’t do a whole years’ worth of vouchers at once), you can’t provide any other benefits, and there are annual caps on the total amount of vouchers you can give. To step through these details please get in touch.

Are you OK with FBT?

By now, we imagine one thing has become clear to you; Fringe Benefit Tax is not always clear! It can be a little tricky to interpret correctly. But since the IRD made FBT a priority, it’s important you get it right. A formulaic approach won’t work. FBT is case-specific, and for this reason we strongly recommend you sit down with us.

Tell us about the benefits you provide, and we’ll give you our opinion.

EJ

for more help feel free to reach out. Get in touch with Eugenie Jones