Are you optimising Fringe Benefit Tax, or are you making common mistakes?

Fringe Benefit Tax

Many New Zealand businesses spend the first few weeks in April focused on closing off the tax year and few are ready to turn their attention this early to the upcoming Fringe Benefit Tax filing deadline. In some respects, that’s understandable when you consider the generosity of the extended filing deadline for the final FBT return of the year. Ordinarily, for quarterly filers FBT returns are due by the 20th of the month following quarter end so the extended filing deadline of 31 May for the final quarter is perhaps a welcome relief. However, time flies when you are having fun and smart businesses turn their attention to the final year’s FBT return much earlier.

Mid-April offers a time to take stock of your FBT processes and review the overall health of your business from an employment tax perspective.

On a conceptual level, FBT is a very simple idea – tax is charged on the value of something that an employer provides to its employees on a non-cash basis. However, the detail within the legislation is such that FBT is something of a minefield that presents a higher risk of error for employers and a happy hunting ground for Inland Revenue investigators.

It’s not all bad news though.

Inland Revenue generally takes a higher level of comfort from a business that can demonstrate good governance around Fringe Benefit Tax management. Any business that has well documented processes and evidence of periodic health check reviews is less likely to be subject to detailed scrutiny.  And it’s for that reason that smart businesses get on top of FBT well before the 31 May filing deadline.

Common problems and misconceptions

Some businesses still struggle with the correct application of FBT and below are some common stumbling blocks

My vehicles are all utes so I don’t need to pay FBT, right?

Not true. To meet the definition of a work related vehicle the vehicle must not be primarily designed for carrying passengers, must be permanently (and prominently) sign written and must not be available for private use. This latter point is often overlooked. If the vehicle is made available for private use then FBT still continues to apply.

But I have a policy that prevents private use and I give my employees a letter, so that deals with the issue doesn’t it?

Not necessarily. Increasingly, Inland Revenue will expect employers to carry out checks to ensure their policy is behind adhered to. The trip from work to home and back again is generally discounted where the employer requires the vehicle to be taken home. However, can you, as the employer, prove that your vehicle is not being used at any other times? What evidence do you have? If you have a policy and you police it, any misuse is a disciplinary issue and would generally not create an FBT issue. However, if you don’t police your policy or take a casual approach to its application you are likely to be seen to still be making the vehicle available, and you should therefore be accounting for FBT.

Our business has a truck/minibus that we let staff use when they need to but that’s outside FBT because is isn’t considered a motor vehicle for FBT purposes.

Not quite right. It may not be a motor vehicle for the specified method of calculating FBT on cars but in recent guidance issued by Inland Revenue it is made clear that making any other type of vehicle available can still give rise to an unclassified benefit. The value of this benefit would then need to be determined by a price typically charged to the public for an equivalent service.

Some of our vehicles are not available at certain times so are exempt from FBT on those days

This may be right, but are you assessing your exempt days correctly? To be an exempt day, the following criteria need to be met:

  • The absence must be at least 24 hours;
  • The employee must be with the vehicle; and
  • The employee must regularly travel on business

The Inland Revenue’s view of the above conditions have also recently been clarified. The absence of at least 24 hours is a matter of fact but what has changed is that Inland Revenue now states that leaving the vehicle at the airport does not automatically exempt the days of departure and return. In fact, guidance on this matter is clear that those days are still considered as available days and it is only the intervening full days of absence that can be considered as exempt days, on the basis that the employer has effectively prevented the employee from using the vehicle as a result of the business nature of being away from the vehicle. Do note however, that this may not be the case if the vehicle is left at home and other family members are able to use it (regardless of whether or not it is actually used). Additionally, greater emphasis is now placed on the concept of “regularly” absent, with an assumption that infrequent travel would not qualify as exempt, even if the trip is for more than 24 hours.

A further exemption applies where the vehicle is taken home for emergency call out duties. However, the exemption only applies on any day that a call out actually occurs.

We provide other benefits but they are covered by a de minimis exemption

Generally fine, but remember that the de minimis exemption rules are very specific. The exemption only applies to miscellaneous benefits (not life insurance, health insurance, loans etc) and the $22,500 total unclassified benefit exemption limit applies across all associated employers. If you are one of a group of companies each company cannot individually apply the exemption.

I know that I have to calculate GST on the value of fringe benefits but I then apply that as a credit in my GST return

No! What goes on the FBT return stays on the FBT return. If you subsequently claim your GST on fringe benefits as a credit in tour GST return you are not paying any GST at all. This is a surprisingly common error, and a potentially costly one.

I don’t use software, I have a great spreadsheet that has been fine for years

Many businesses still rely on spreadsheets to calculate their FBT, particularly for the more complex March quarter. Do you know that you can save significant time and costs by using smart software that is specifically designed for FBT. TaxLab produces market leading software that will save valuable preparation time and can reduce the potential for error. Many New Zealand businesses miss opportunities to save on FBT costs by not fully utilising the year end alternate rate FBT calculations, whilst others waste valuable time processing their calculations through the Inland Revenue tool.

If you would like to discuss a Fringe Benefit Tax health check for your business or learn more about FBT software contact TaxBridge Limited

© TaxBridge Limited 2018

www.taxbridge.co.nz

PO Box 502, Whangaparaoa 0943

021 816541

This publication contains generic information only and TaxBridge Limited is not providing any specific advice. TaxBridge Limited is not responsible for any loss sustained by anyone relying on the contents of this publication. TaxBridge Limited recommends that specific taxation advice is sought for all matters covered by this publication.

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