Navigating FBT in New Zealand: Essential Tips for Business Owners

Understanding Fringe Benefit Tax: A Refresher

If you’ve received an email from the IRD about your FBT returns recently, you’re not alone. Many of our clients at Business Like NZ Ltd contacted us after receiving correspondence suggesting errors in their FBT filings.

Rest assured, these messages weren’t necessarily indicating actual errors in your returns. Rather, the IRD was encouraging all FBT filers to review their knowledge and ensure compliance. Think of it as a friendly reminder to double-check your FBT practices.

But what exactly is a fringe benefit? Simply put, it’s any non-cash benefit provided to an employee (current, former, or future) in connection with their employment. These benefits supplement their salary and wages, falling into five main categories:

• Motor vehicles available for private use
• Subsidised transport
• Free or discounted goods and services
• Low-interest loans
• Employer contributions to health funds, superannuation schemes, and specific insurance policies

Learn more about FBT in our article: Mastering Fringe Benefit Tax in NZ: Expert Tips

Top 5 FBT Compliance Tips

1. Calculating FBT on Motor Vehicles Correctly

When determining the value of a motor vehicle benefit, you can choose between using the cost price or the tax book value method. The best choice depends on your circumstances:

• Cost Price Method: Generally less expensive in the first few years
• Tax Book Value Method: More advantageous if you have owned the vehicle for more than five years

The key is selecting the option that provides the greatest benefit for your business situation.

2. Understanding Motor Vehicle Exemptions

There’s often confusion about what qualifies as a work-related vehicle exempt from FBT. A vehicle primarily designed to carry passengers won’t qualify for exemption. While single and double cab utes aren’t considered primarily passenger vehicles by the IRD, this doesn’t automatically exempt them.

To qualify for the daily work-related vehicle FBT exemption, you must meet all these criteria:

• The vehicle must be a motor vehicle
• It must be designed primarily for carrying goods or equally for goods and passengers
• Your company branding must be permanently displayed
• Employees assigned to the vehicle must receive a letter of restriction outlining that the vehicle is only available for work travel and travel between home and work

Remember to review these arrangements quarterly to ensure ongoing compliance and identify any changes that might affect FBT application.

Additional exemptions may apply if your employee:

• Regularly travels away from home with a vehicle for at least 24 hours
• Needs the vehicle for emergency calls
• Has the vehicle out of action at a repair shop or parked at the airport during business travel

Don’t fall into the trap about Utes – see our article: Is Your Ute Really Exempt from FBT? What Business Owners Need to Know 

3. Accounting for GST on FBT

Don’t forget that GST needs to be accounted for on benefits provided to employees. Calculate the GST on the value of the taxable benefit (not the FBT payable amount), excluding any exempt or zero-rated items. Exempt benefits include:

• Loans to employees
• Contributions to employee superannuation
• Life insurance policies

Once you’ve calculated the total taxable value of benefits, determine the GST portion and include it in the appropriate section of your FBT return.

4. Managing Employee Contributions

When employees contribute toward a fringe benefit, deduct this amount when calculating the taxable value. If the employee’s contribution covers the full benefit amount, the taxable value becomes zero, eliminating any FBT liability.

Important: Even with a nil fringe benefit value, you must still include this in your FBT return.

5. Special Considerations for Shareholder-Employees

Fringe benefits for shareholder-employees may receive different FBT treatment. For example, when providing free or discounted goods to a shareholder-employee, you can either:

• Pay FBT on the taxable value, or
• Elect to treat them as dividends

Recent Changes to Be Aware Of

It’s worth noting that the FBT landscape has evolved recently:

• FBT rates changed in 2021 in line with the top tax bracket change
• A new pooled alternate rate calculation was introduced in 2022

Staying current with these changes ensures your business remains compliant while optimizing your FBT strategy.

Need Further Assistance?

The IRD has published a helpful guide to assist with completing your FBT returns. This resource provides detailed explanations and examples to ensure you’re on the right track.

If you’d like personalized help understanding your FBT obligations, please contact your Business Like NZ advisor. We’re here to provide tailored advice based on your specific requirements and help you navigate the complexities of FBT compliance.

By staying informed and implementing these tips, you can ensure your business meets its FBT obligations while taking advantage of available exemptions and minimizing unnecessary costs.

This article provides general information only and does not constitute professional advice or recommendations from Business Like NZ Ltd. For specific advice tailored to your circumstances, please contact your Business Like NZ advisor.