Many businesses supply employees with benefits or perks, ranging from a motor vehicle that is used privately to meals and entertainment. Providing benefits can be a great way to recognise and reward your employees’ contribution to your business, but you should remember that some benefits or perks are subject to fringe benefit tax (FBT).

What is fringe benefit tax?

Fringe benefit tax (FBT) is simply a tax paid on benefits that employees (past, present or future) receive and enjoy as a result of their employment. This includes benefits given to employees or shareholder-employees that are provided through another person.

If, as an employer, you provide fringe benefits to your employees, shareholder-employees, or other people associated with your employees (including family members or friends), generally you must pay FBT on the value of these benefits.

What are considered fringe benefits?

Common fringe benefits include:

• the private use of a motor vehicle (FBT is calculated on the availability of the vehicle rather than the actual usage per kilometre)
• low interest loans
• free or discounted goods and services
• subsidised transport
• contributions to sick, accident or death benefit funds, or to insurance
• other benefits if the cost is above certain thresholds.

Contributions to superannuation schemes are generally subject to Employer Superannuation Contribution Tax rather than FBT.

FBT on goods and services

Here are some frequently asked questions about FBT on goods and services.

Do I have to pay FBT on clothing I supply to my employees?

No, provided the clothing is distinctive work clothing; that is, it forms part of a uniform that is identifiable with the employer because of logos or the pattern, colour scheme or style.

Is the car parking that I provide for my employees subject to FBT?

Yes, if you pay for this car parking. However, if you provide car parking on your own or permanently leased premises, you are not liable for FBT.

FBT on entertainment

Some entertainment expenses are subject to FBT, some are subject to the entertainment rules (which limits the deductible expense to the employer), and some are not subject to tax at all. There are detailed rules to determine the treatment of each type of entertainment expense.

Here are some commonly asked questions about FBT on entertainment.

Is there FBT on employee entertainment, meals or gifts?

Yes, any entertainment benefits employees consume or enjoy when they choose, and outside their employment duties, are subject to FBT.

I provide my staff with food and beverages after work every Friday. Is this expense liable for FBT?

If employees can only enjoy this form of entertainment at a set time, the cost is not subject to FBT. However, the rules for entertainment expenses may apply.

FBT on motor vehicles

Here are some commonly asked questions about FBT on motor vehicles.

When is a motor vehicle subject to FBT?

If a business or company vehicle is principally designed for passenger transport and is available to employees, shareholder-employees or their associates for private use, it is liable for FBT.

What is “private use”?

For the purposes of FBT, private use includes travel from or to the employee’s home, and any other travel that involves a private or domestic  element.

I have leased the company car that is available to my employees. Do I have to pay FBT on it?

Leased vehicles have been aligned with vehicles owned by the employer and therefore FBT is calculated using the cost price or market value.

Calculating FBT

You can choose from three methods: single rate, alternate rate , or short-form alternate rate.

 Single rate

You can choose to pay FBT at a single rate of 49.25% on all benefits you provide to employees, including shareholder-employees. Learn about the use of the single-rate option to calculate FBT.

 Alternate rate calculation process

The alternate rate calculation process allows an employee’s fringe benefits to be taxed at their marginal tax rate. This process ensures that fringe benefits of employees earning less than $70,000 are not over-taxed as they may be under the single-rate option.

 Short form alternate rate calculations

Learn here the use of the short-form alternate rate calculation option for FBT if you are an employer.

GST, income tax and FBT

Does the taxable value of fringe benefits include GST?

Usually, the taxable value of a fringe benefit includes GST, unless the fringe benefits are GST-exempt (for example, low-interest loans, overseas travel and life insurance).

So when you’re working out the value of benefits to pay FBT on, you should usually choose the GST inclusive amount.

Income tax issues

Some employee payments and provisions, related to entertainment and remuneration, are not subject to FBT.

If employees can only enjoy entertainment at a set time, or as part of their employment duties, the cost is not subject to FBT but comes under the rules for entertainment expenses (which means only 50% of the expense is tax deductible for the employer). The following are specified types of entertainment for income tax purposes when an employer provides them to employees.

• Corporate boxes and similar exclusive areas at sporting and recreational events.
• Holiday accommodation.
• Pleasure craft.
• Food and beverages (with some exceptions).

Such items will come within the FBT rules if:

• The employees can choose when to enjoy the benefit, or they enjoy or consume the benefit outside New Zealand.
• The employees do not consume or enjoy the benefit in the course of or as a necessary consequence of employment.

Example:

A business provides drinks for employees in the local pub for the weekly staff get-together. This benefit is not subject to FBT because the employees can only enjoy the drinks at a set time, arranged by the employer. The cost of the drinks is 50% deductible for income tax.

What if I don’t provide fringe benefits?

If you don’t provide any fringe benefits, you can apply to stop filing FBT returns:

• Completing the FBT form online on the  Inland Revenue website.
• Phoning Inland Revenue on 0800 377 772, or writing to Inland Revenue.

It’s important to remember that if you start providing fringe benefits at any stage, you must tell Inland Revenue immediately, and start filing FBT returns.