Issue 5 December 2003 (FBTnews)

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FBTnews - 2003

Issue 5 December 2003

In this issue:

Welcome to FBTnews
Are you paying too much or not enough tax?
FBT prescribed interest rate for loans
FBT and motor vehicles
Fringe benefit tax review
Freepost envelopes

Welcome to FBTnews

In this issue we look at incorrect FBT calculations and how some employers are paying too much or not enough. We also look at proposed changes to the FBT rules.

Are you paying too much or not enough tax?

A recent review of FBT returns has shown a number of employers are either paying too much or not enough FBT. Although we have raised this issue in previous editions of both FBTnews and Payroll News some of you are still calculating the GST on fringe benefits incorrectly.

Common mistakes include:

Multiplying the taxable value by 12.5%
Some of you are calculating the GST on the taxable value in Box 3, but instead of dividing the value in Box 3 by nine, you are multiplying it by 12.5%, resulting in an overpayment of tax.
Calculating the GST on the incorrect value
This is occurring as the result of the GST calculation being worked out on the value shown in Box 6, instead of the value in Box 3, resulting in an underpayment of tax.

The GST payable on FBT is always one-ninth of the taxable value in Box 3 (less any fringe benefits that are exempt or zero-rated for GST - you should deduct these from the value in Box 3 before working out the GST payable). Simply divide the value in Box 3 by nine and this will give you the GST value to show in Box 7 of your quarterly return (Box 6 for annual and income year returns).
If your calculations have been incorrect on past returns
If, after checking your GST adjustment calculations, you find errors, simply phone us on 0800 377 772 and tell us the correct amounts.

In most cases, we can amend the returns while you are on the phone and tell you if you are due a refund or if you have a new amount to pay. We'll set a new due date for any extra tax payable and you won't get late payment penalties if you pay by the new due date.

Note: You can eliminate errors by filing online.

A good way to stop these errors is to file your FBT return online.

The GST and, in most cases, the FBT payable is automatically calculated for you. This gives you the total amount payable based on the taxable value of benefits you enter in the return.

How to file online with eFBT

Go to "Online services", click on "File a tax return" and then click on "FBT return filing".

Keep the paper return we've sent you handy because you'll need to key in the unique 14-character number printed at the top.

Other benefits of filing your FBT returns online are:

the eFBT return arrives at Inland Revenue the same day as you send it
you can save on postage costs if you pay electronically.

FBT prescribed interest rate for loans

For the quarter beginning 1 October 2003 the prescribed rate of interest for calculating the fringe benefit value of low-interest loans to employees is 7.08%. This is a decrease from the previous quarter's rate of 7.33%.

FBT and motor vehicles

What FBT liabilities arise for my motor vehicle when I change my business structure from operating as a partnership or sole trader and form a company?

As a sole trader or as a partner in a partnership you would not have had any FBT liabilities for a business motor vehicle that was used for private purposes. You would have been required to account for the private use of the vehicle by making an adjustment in your income tax and GST returns.

Note: If you were an employer you may have had an FBT liability if the vehicle was available to any of your employees.

If you form a company and introduce or buy a company motor vehicle, an FBT liability will arise if the motor vehicle is available for private use by employees or shareholder-employees. You will have to pay FBT, whether or not the vehicle is actually used.

We cannot advise you whether you should introduce or buy a company vehicle, or if you should use your own vehicle for company business. You will need to determine this yourself based on your company's circumstances. If you are still unsure consult your tax accountant.

Fringe benefit tax review

The government's recently released discussion document contains a number of proposals aimed at improving the workability of the FBT rules through a combination of making them more consistent and reducing compliance costs. The proposed key changes are:

A reduced rate on motor vehicle fringe benefit tax, from 24% to 20% of the vehicle's cost.
Vehicle owners will have the option of calculating the benefit on the basis of the vehicle's depreciated book value, at a rate of 36%.
Aligning the treatment of leased vehicles with that of owned vehicles.
Carparks being subject to FBT irrespective of whether they are considered to be on or off the employer's premises. The document discusses options on how car parks might be valued and a threshold under which many carparks would remain untaxed.
The multi-rate calculation would be retained but streamlined by options such as an Inland Revenue multi-rate calculator.
Raising the minimum value thresholds that have to be exceeded before minor benefits are taxable. The employee-related exemption would be increased from $75 to $200 per quarter, while the employer-related exemption would be increased from $450 to $2,000 per quarter.
Several new exemptions are proposed, including for the private use of business tools such as cellphones and laptops that have been provided to employees primarily for business purposes.
The exemption that charities have from FBT would be retained but an anti-avoidance rule is suggested.

You can view the details of the government's proposals under the menu heading "Organisation info". Select "Tax Policy" which will take you to our "Policy Advice Division Page". You will find the "Discussion Document" link under the heading "Publications".

Submissions on proposals close on 27 February 2004. We encourage you to have your say.

Freepost envelopes

Good news! You may have noticed that the envelope included with your FBT return this quarter is a freepost envelope. We have done a lot of research with businesses over the past couple of years on business tax compliance costs and the issue of postage costs for filing returns has been raised consistently. The Minister of Revenue announced earlier this month that freepost envelopes will be provided to employers and GST-registered businesses for posting returns and payments due from January 2004 onwards.

Kathleen Clement
Manager, Delivery, Planning and Initiation