Work-life balance has become a priority for most employees. With this shift, benefits and perks are now a great tactic to attract and retain top talent. When you provide special perks to your employees, like gym memberships or work vehicles for personal use, you may be liable for Fringe Benefit Tax (FBT). FBT can be expensive for your business, and you are required to make payments to Inland Revenue (IRD) either quarterly, annually or on an income basis. Therefore, to avoid late payment penalties and interest, it is essential to understand:
- which benefits are subject to FBT in New Zealand;
- how to choose a filing frequency; and
- how much you need to pay.
This article will explain your tax obligations as an employer under New Zealand law.
What is Fringe Tax Benefit?
Fringe benefits include most benefits and perks that you give to your employees, their family or related person* other than their salary or wages. In New Zealand, there are four fringe benefits categories:
- motor vehicles provided by the business for the employee’s private use;
- any goods or services that you provide to your employees for free, subsidised or discounted;
- low interest loans except for life insurance; and
- any contributions from the business towards the employee’s sickness, accident or death benefit funds, superannuation schemes and insurance policies.
When your employees receive fringe benefits as a result of their employment, these benefits are liable for tax. As an employer, you have to:
- pay tax on the benefits that you give to your employees or shareholder-employees;
- file your return either quarterly or annually; and
- pay FBT.
Some entertainment expenses may be subject to tax if your employees enjoy or receive them. You can find out more details on this topic on the Inland Revenue website.
Some benefits are not subject to tax but, typically, you must deduct some other form of tax such as PAYE. This excludes instances in which you are reimbursing your employee’s expenses. These exceptions include:
- cash benefits such as bonuses; and
- cash allowances (or non-cash benefits provided in place of the allowance) such as tools to carry out work.
Registering for FBT
You need to register for FBT before you give your employees a fringe benefit. You can do this online when you register as an employer with IRD or by completing the Employer registration form (IR334).
You will also need to let IRD know if your circumstances change, such as when you:
- start providing fringe benefits;
- stop providing fringe benefits but continue to employ staff;
- stop employing staff and providing fringe benefits; or
- deregister a charity.
How to File FBT
You can file your FBT return online using IRD’s myIR service or completing a paper return. There are three frequencies for filing:
- quarterly (IR420);
- income year (IR421); and
- annually (IR422).
Your choice will depend on your business structure, whether you were an employer in the previous year and how much tax you pay.
How to Calculate Your FBT Liability
You pay FBT on the cost of the benefit to the employee. For example, if you provide your employee with a car and they use it for both work and personal purposes, FBT applies to the cost of the car for the portion of time that is available for personal use.
To determine how much tax to pay for each benefit, you need to use the formulas provided by the IRD. These are explained in the FBT guide (IR409).
FBT can be overwhelming, so you should get professional advice if you are not sure whether your employees’ benefits are taxable. If you miss out on paying tax, you can end up with a large unexpected bill.
How to Pay FBT
You need to pay FBT by the date advised in your return, either electronically, by credit or debit card. When making electronic payments, you need to include:
- your IRD number;
- a tax type code; and
- the period for the payment.
If you miss a payment or you do not pay by the due date, you will have to pay penalties and interest.
Key Takeaways
When you offer benefits to your employees, in addition to their salary and wages, you have to pay FBT to Inland Revenue. Determining whether you are eligible can be complicated, so you should get legal advice if you have any doubts. You can register for FBT as part of your registration as an employer, and you will need to notify Inland Revenue if your circumstances change. You are required to file an your return either quarterly, annually or by income year. Your choice will depend on your company type, whether you were an employer in the previous year and how much tax you pay. To calculate your tax liability, you will need to refer to the formulas provided by IRD in their FBT guide (IR409). It is essential to get it right and pay on time, to avoid penalties and interest.
If you need help assessing whether you are liable for FBT or understanding your tax obligations, LegalVision’s employment lawyers can help. Call 0800 005 570 or fill out the form on this page.
Frequently Asked Questions
As an employer, you pay FBT on most benefits and perks you provide to your employees, their family or other associates, even if you have an arrangement with a third party to deliver the goods or services to your employees on your behalf.
There are three different FBT rates, which depend on whether you have to attribute the benefit to a particular employee. The single rate is 49.25%, and it applies to all fringe benefits you provide to your employees. However, in some cases, it may be more beneficial for your business to use an alternate rate.
As an employer, you have to file and pay FBT either on a quarterly, annually, or income year basis. You can then deduct the tax expense from your reportable income at the end of the financial year.
When you provide motor vehicles to your employees, you can either calculate FBT on a quarterly or annual basis. To determine how much FBT to pay, you need to use the formulas provided by Inland Revenue in the FBT guide (IR409). The FBT value for each quarter is 5% of the owner’s GST inclusive cost price of the vehicle. If you file on an annual basis, the value of the benefit is 20% of the owner’s GST inclusive cost price.
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