Understanding Fringe Benefit Tax in New Zealand

Fringe benefit tax (FBT) has been around since the mid-1980s and was a framework introduced to ensure employee’s full remuneration packages were subject to tax, not just the cash remuneration portion.  While it has been tweaked over the last four decades, the principle of FBT remains – it is a tax on non-cash perks employers provide their staff, alongside regular pay.

There are four main types of fringe benefits:

• Availability of private use of a work vehicle
• Free, subsidised or discounted goods and services
• Employer contributions to insurance (such as health, accident or death benefit funds) and superannuation schemes (excluding KiwiSaver)
• Low-interest loans

How does FBT work?

FBT is separate from income tax and GST, and is based on the value of the benefit, not the cost to the employer.  The default position is that FBT is filed quarterly, however, there is an annual return and an income year return filing option for those who meet the applicable criteria.

The FBT rate applied depends on the type and value of the benefit, as well as the income level of the employee.

There are three main methods to calculate FBT:

1. The single rate;
2. The alternate rate;
3. The short-form alternate rate.

Each method has different advantages and disadvantages, and employers can choose the one that suits their situation best.