10 June 2024

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.

What to look out for?

There is a reason that businesses love to hate FBT – the rules are complex.  For example, there are a number of exemptions that may or may not apply, the calculations are complex (particularly when using the alternate rate for calculating FBT) and many businesses often get it wrong.

Some common errors we see:

  • Using incorrect values to calculate the value of motor vehicle fringe benefits (cost price versus tax book value)
  • Work-related vehicle exemptions being incorrectly applied
  • GST being calculated incorrectly on fringe benefits
  • The GST portion of the FBT payment also being claimed within the GST return and superannuation schemes (excluding KiwiSaver)
  • Lack of record keeping
  • Following old advice that has become outdated or no longer suitable for the needs of the business

The role of professional advice

Given the complexity of the FBT rules, seeking professional advice is recommended for businesses.  Tax advisors and accountants with expertise in FBT can provide invaluable guidance on FBT compliance, planning, and optimisation strategies tailored to the specific needs of each business.

Talk to our experts

Please reach out to one of our trusted Nexia Advisors if you’d like some help understanding your FBT obligations.

Nexia is one of New Zealand’s best accounting and business advisory consultancy firms offering the full range of accounting, advisory, audit, tax and insolvency services. Nexia New Zealand has offices on Victoria Street in the Christchurch CBD, Albany and Newmarket in Auckland, and Hastings in the Hawke’s Bay.

Find updates