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Last year we were contacted by a number of our clients regarding correspondence they received from the IRD in relation to their FBT returns.
Whilst the IRD’s message claimed that errors were found in the FBT returns filed by the clients, it turns out this wasn’t necessarily the case.
The emails were a way to encourage all FBT filers to ensure they were completing their returns correctly. Whilst it was a little scary for clients to receive these, the main aim of the correspondence was to ensure everyone refreshes their knowledge on the correct way to file FBT returns.
The common areas where the IRD sees errors occur are:
Also remember that the FBT rates changed in 2021 and a new pooled alternate rate calculation was introduced in 2022.
Let’s start at the beginning and refresh everyone’s memory.
A fringe benefit is a non-cash benefit provided to an employee, including a former or future employee, in connection with their employment. Most benefits that employees receive are in addition to their salary and wages and fall into five categories.
Here’s our top five checklist of things to be aware of:
It is important to make sure you choose the correct option to calculate the value of your motor vehicle. You have a choice whether to use the cost price or the tax book value.
When it comes to choosing which method to use, the general rule is the option that benefits you most. The tax value method costs more in the first few years when compared to the cost price method. However, the tax value method is better if you wish to keep the vehicle for more than five years.
There is some confusion about the criteria for a work-related vehicle (one which is exempt from FBT). If the vehicle is designed to mainly carry passengers then it won’t be exempt. Single cab and double cab utes are not considered by the IRD to be for mainly carrying passengers, however, this doesn’t mean they are automatically exempt from FBT.
To qualify for the daily work-related vehicle FBT exemption, your business must meet the following criteria:
Every quarter these arrangements must be reviewed to ensure they are being adhered to and to alert you to any changes to the arrangement which may affect the application of FBT.
Exemptions may also apply if your employee is required to travel away from home regularly with a vehicle, and those trips are for at least 24 hours, and require the use of the vehicle. In addition, if the employee is required to make an emergency call, an exemption may apply. Similarly, if the vehicle is out of action at the repair shop or parked at the airport while the employee is away on business, and exemption may apply.
GST does need to be accounted for on any benefits provided to employees. The GST is calculated on the value of the taxable benefit, not the FBT payable amount, less any exempt or zero-rated items. Exempt benefits include loans to employees, and contributions to employee super and life insurance policies.
Once you have the total taxable value of any benefits, you then calculate the GST portion on this amount and include that in the appropriate box in your FBT return.
If an employee makes a payment to contribute towards the fringe benefit, this needs to be deducted when working out the taxable value of the benefit.
If your employee contribution covers the full amount of the fringe benefit, this reduces the taxable value to zero and so there is no FBT liability. But don’t forget, as an employer you still need to include the nil fringe benefit value in the FBT return.
If shareholder-employees receive fringe benefits these may be treated differently for FBT purposes. For example, if free or discounted goods are provided to a shareholder-employee, they can either pay FBT on the taxable value of those goods or elect to treat them as dividends.
The IRD have released this handy guide to assist you when completing your FBT return.
If you’d like some help understanding your FBT obligations, please contact your Nexia advisor to provide you with the best advice based on your current requirements.
