Fringe benefit tax (FBT)

Providing your employees with special perks such as gym memberships or work vehicles for personal use may make you responsible for paying fringe benefit tax (FBT).

FBT is a tax imposed on benefits that employers offer to their employees. These benefits may include:

• work vehicles available for personal use
• subsidies on gym memberships or insurance
• discounted goods and services.

FBT does not apply to benefits that have already been taxed for the employee, such as:

Jim is the owner of a plumbing business that has a team of three and a duo of vans. Jim himself drives one of the vans, while his subordinate, Paul, uses the other van after hours and on weekends.

In the beginning, Jim permitted Paul to use the van for non-business activities on weekends, which caused Jim to be responsible for paying FBT on 2/7th of the van’s value.

However, Jim subsequently realised that this was proving to be a significant expense for his business, and thus requested that Paul sign a contract stating that he would only utilise the work van for commuting to and from job sites. Paul agreed, and as a result, he now parks the van at his place of residence when it is not in use for work-related purposes.

Because the van is no longer available for personal use, Jim is no longer obligated to pay FBT on Paul’s usage of the van.

Employer contributions to KiwiSaver that are compulsory are not subject to FBT. Instead, they are taxed through ESCT. FBT only applies to KiwiSaver employer contributions that are not subject to ESCT or PAYE.

There are four primary categories of fringe benefits that are subject to taxation:

• Motor vehicles that are accessible for personal use.
• Goods and services that are free, discounted, or subsidised by the employer.
• Low-interest loans, excluding those given by life insurance firms.
• Employer contributions to specified insurance policies, sickness, accident or death benefit funds, and superannuation schemes are not subject to ESCT.

FBT is calculated based on the cost of the benefit to the employee, such as the cost of a car during the period in which it is available for personal use.

See formulas in the FBT guide — Inland Revenue
FBT categories — Inland Revenue

Upon commencing the provision of fringe benefits to your employees, you must register for FBT with Inland Revenue. This can be done via online registration or by contacting Inland Revenue by phone.

FBT can have a substantial cost impact. Therefore, it is recommended to consult the FBT guide (IR409) before offering any employee benefits. In case of confusion about FBT regulations, it is advisable to seek professional advice. Failure to realise your FBT obligations on time may lead to a significant bill later.

Download the FBT guide (IR 409) — Inland Revenue

You have three options for filing tax returns, depending on your company’s type and tax payments:

1. Quarterly
2. Annually for the tax year
3. Annually for your income year

Your options may be restricted based on your company’s type and yearly tax payments.

Which FBT return period is best for your business — Inland Revenue

To avoid falling into common FBT traps, keep in mind the following:

• Many employers only realise too late that they are obligated to pay FBT. If you’ve been providing taxable benefits for a while without paying FBT, you may need to make backdated payments, leading to significant costs.
• Failure to calculate the financial implications can also be a pitfall. FBT can be costly, so it’s worth considering whether offering higher salaries or regular bonuses would be more beneficial.

If you need help, contact us.