Issue 6 March 2004 (FBTnews)

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FBTnews - 2004

Issue 6 March 2004

Filing options
FBT prescribed interest rate for loans
Common mistakes

Welcome to FBTnews

In this issue we look at return filing options and some of the more common mistakes made when calculating FBT.

Filing options

Are you filing nil FBT returns?

We've noticed a number of employers are filing nil FBT returns when they don't need to, so we've included a Fringe benefit tax election (IR414) form with this newsletter.

If you are not providing fringe benefits, you may be eligible for an exemption from filing FBT returns. Simply tick the "Not liable for FBT?"circle on the election form provided and return to us. If you prefer, you can make your election electronically via the online services section of our website. Once we have processed your election form we will write to you telling you the date the change becomes effective. In the meantime, you will still need to file any FBT returns we have already sent you.

Would you like to change your filing frequency from quarterly to yearly?

If your annual gross PAYE tax deductions and specified superannuation contribution withholding tax deductions are $100,000 or less, you can elect to file annual or income year returns.

Note: Income year returns are only available to companies. For more information on the options available refer to the Fringe benefit tax election (IR414) form.

Election due dates when changing from quarterly to yearly returns

There are set dates by which you must make an election to file yearly returns.

It is important that you make your election by the due date as we cannot accept late elections. If your election is late, you will have to continue filing quarterly returns until the following financial or income year.

Due date to make election to file annual returns
If you want to file your first annual return for the year ended 31 March 2005, you must make an election by 30 June 2004.
Due date to make election to file income year returns
Companies with shareholder-employees need to elect to file income year returns by the last day of the first FBT quarter in the income year. A company with a 30 June balance date would have to elect by 30 September 2004 to file a return for the year ended 30 June 2005.
Due date for electing to file both annual and income year returns
Companies choosing this option need to make their election by the later of:
- the last day of the first FBT quarter of the annual year, or
- the last day of the first FBT quarter of the income year to which the election applies.

A company with a 30 June balance date would have to elect by 30 September 2004 to file annual and income year returns for the periods ending 31 March 2005 and 30 June 2005 respectively.

Note: The due dates for making any election for new employers and companies differ, so please refer to the Fringe benefit tax guide (IR409) if this situation applies to you.

Should you be using the multi-rate calculation for the FBT return for the period ending 31 March 2004?

If you used the 49% FBT rate in any one of quarters 1 to 3 you must complete either the "full" multi-rate calculation or the "short-form" option in the fourth quarter (1 January to 31 March 2004). If you have used the 64% FBT rate in all of the first three quarters, or you are completing an annual return you can either use the multi-rate calculation or pay FBT at 64%.

If, when completing your quarterly or annual return for the period ended 31 March 2003, you did not know:

all the remuneration of your shareholder-employees, or
those receiving attributed income

and you applied the 49% FBT rate to the value of the attributed benefits, you must use the multi-rate calculation in your FBT return for the period ending 31 March 2004.

FBT prescribed interest rate for loans

There's no change to the prescribed rate of interest for calculating the fringe benefit value of low-interest loans to employees. It remains at 7.08% for the quarter beginning 1 January 2004.

Common mistakes

FBT and motor vehicles

The majority of mistakes we've identified relate to motor vehicles, mostly around work-related vehicles and general exemptions.

Before a vehicle qualifies for a work-related vehicle exemption the following conditions must be met.

The principal design of the vehicle cannot be for carrying passengers, with the exception of taxis.
The employer's name, logo, acronym or other business identification must be permanently and prominently displayed on the exterior of the vehicle. Magnetic or removable signs are not sufficient and neither is signwriting on a removable part of a vehicle (such as a spare wheel cover).
The employer must notify employees in writing that the private use of the vehicle is limited to:
- travel between home and work
- travel incidental to business travel (eg passing the dairy on the way home from work).
The employer must record checks carried out at least quarterly on each vehicle for which this exemption is claimed, to ensure that the restriction is being followed. The checks can take any form the employer chooses as long as the check shows the restriction is being followed.

Partial exemption

If a work-related vehicle meets these four conditions, is not available for private use most of the week but is allowed for some private use on certain days, such as weekends, you can have a partial exemption. This means you would pay FBT on those days in each quarter.

For more information about work-related vehicles see page 16 of the Fringe benefit tax guide (IR409). If you don't already have a copy you can get this from our website or by phoning INFOexpress on 0800 257 773.

Other motor vehicle mistakes we've identified include:

GST not being included in the cost price when calculating the FBT liability.

You can use the GST-exclusive cost if that's easier for you, provided you use 6.75% instead of 6% to calculate the taxable value.

Example:

Cost of vehicle $26,400 (GST-exclusive) x 6.75% = $1,782
Cost of vehicle $29,700 (GST-inclusive) x 6% = $1,782

Note: If you file annual or income year returns instead of using 24% of the GST-inclusive cost you will need to use 27% if you are calculating the taxable value on the GST-exclusive cost.

No record kept of emergency callouts for exemption days.

Records must be kept for all emergency callouts if you want to claim an exemption. Details of the time and the nature of the callout should be recorded.

Number of days the vehicle is available

The most common mistake is wrongly calculating the number of days a vehicle is available. This is the result of basing each quarter on 90 days when in fact most quarters have 91 or 92 days.

Example:

There are 91 days in the March quarter. If a vehicle was not available for private use for eight of those days, the FBT liability would be based on 83 days not 82 days.

Incorrect cost price being used when calculating FBT liability - see the following article.

"Cost price of the motor vehicle" - meaning for FBT purposes BR Pub 03/06

This ruling replaces BR Pub 00/10 and applies from 1 November 2003 to 31 October 2008.

If an employee has the private use or enjoyment, or the availability for private use or enjoyment, of a motor vehicle that is owned by the employee's employer, the employer must pay FBT on the value of the benefit. The benefit is worked out according to the cost price of the vehicle to the employer, rather than the value of the benefit to the employee.

If an employer buys a motor vehicle to be used by, or to be made available for use by an employee, other costs are incurred as well as the purchase price before the vehicle is ready for use by the employee. Some of the additional costs are:

On-road costs. No motor vehicle can be driven on the road unless:
- the motor vehicle is registered, and
- the registration plates and a current licence issued for the vehicle are fixed and displayed on the vehicle, and
- the full amount of the accident compensation levy has been paid. The cost of transporting the vehicle to the initial place where it is to be used.
The cost of fitted accessories, components or equipment required for and relating solely to the business operations for which the vehicle is used.
The cost of accessories, components, and equipment, such as towbars, roofracks and stereos fitted to the car at the time of purchase or at some later time.

The ruling identifies the costs that form part of the "cost price of the motor vehicle" for FBT calculation purposes. The commentary to the ruling contains some useful discussion and examples. BR Pub 03/06 was published in our Tax Information Bulletin (TIB), Vol 15, No 9 (September 2003) you can find this in the Newsletters and Bulletins section of our site. You can ask for a copy of the ruling to be emailed to you from rulings@ird.govt.nz.