Issue 7 June 2004 (FBTnews)

You are here: Home › About us › Newsletters and bulletins › FBTnews › FBTnews - 2004

About us
E pa ana ki Te Tari Taake

FBTnews - 2004

Issue 7 June 2004

In this issue:

Welcome to FBT news
Common mistakes
FBT prescribed interest rate for loans

Welcome to FBTnews

In this issue we continue the topic "common mistakes made when calculating FBT" that we started in the March edition. We also look at motor vehicle multi-leases.

If you have any FBT topic you'd like to see in the newsletter you can write to the Editor, FBTnews, PO Box 2198, Wellington or email us and we'll aim to cover the topic in a future edition.

Common mistakes

FBT and superannuation and insurance schemes

The second most common mistake made when calculating FBT after motor vehicle discrepancies is around employer contributions to funds, insurance and superannuation schemes.

Most of these errors relate to medical insurance schemes where the employer fails to account for FBT on health insurance provided for employees. Employer's total contributions to medical insurance schemes are liable to FBT.

Other common errors also include:

FBT not paid on an employee's life insurance premium where the employee's estate would benefit
GST-exclusive amount of medical insurance premiums used as fringe benefit value instead of the GST-inclusive amount
FBT being paid on superannuation when specified superannuation contribution withholding tax (SSCWT) has already been paid, resulting in an overpayment of FBT. FBT on employer contributions to superannuation schemes is only payable where SSCWT does not apply.

FBT and free, subsidised or discounted goods and services

Goods and services is another category where there are errors in accounting for FBT. These include:

FBT not being returned on free overseas trips provided to employees as rewards. Where an employer pays for all or part of an employee's overseas trip, which is not work related, the total value of the employer's contribution is liable for FBT. Where the employer is an airline carrier special rules apply. For more information refer to 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.
Goods supplied to employees at less than the cost price to the employer - the cost to the employer is usually the price paid to purchase those goods. However, if the employer manufactured, produced or processed the goods, the cost is the lowest price at which identical goods are sold by that employer to other customers. Where goods are supplied to an employee at less than cost price, FBT is normally payable on the difference between what the employee paid and the cost to the employer. Refer to the Fringe benefit tax guide (IR409) for more information.
Goods taken for own use by shareholder-employees - where a company provides goods to a shareholder-employee the company can either pay FBT on them or elect to treat them as dividends. If an election is made to treat the benefits as dividends, you must let us know in writing within the time allowed for filing your FBT return. If you don't make an election, the benefit will be treated as a fringe benefit and the total value of the benefit will be liable for FBT.
Club memberships - where an employer pays the employee's club membership fees, FBT is payable on the total value.
Christmas parties (not held on work premises) for employees - entertainment benefits that employees consume or enjoy away from their work premises are subject to FBT.
Gifts to employees - any gifts to employees that fall outside the general exemption rules for goods or services are subject to FBT. For more information on exemptions see page 28 of the
Fringe benefit tax guide (IR409).

Other mistakes we've identified include:

GST either not being accounted for, or incorrectly calculated on the taxable value of fringe benefits. When a fringe benefit is provided, GST is payable on the GST-inclusive fringe benefit value (Box 3 on your FBT return) unless the supply is GST exempt or zero-rated, in which case no GST is payable.
Not using the multi-rate in the fourth quarter when required. For example, where 49% was used in any of the three previous quarters, or where a shareholder-employee's remuneration or attributed income was unknown in the previous year and the 49% option was applied.
FBT not accounted for on shareholders' overdrawn current accounts. Where a shareholder-employee has an overdrawn current account, the company must either pay FBT or, alternatively, charge interest. As the circumstances of current accounts differ, you will need to determine which option is best for you. If you are unsure, consult your tax accountant.
Errors in calculation when using the multi-rate calculation method for FBT in the fourth quarter or annual return. These errors include not attributing benefits supplied to specific employees, and incorrect figures and calculations being applied when working out FBT payable for the year.

FBT and motor vehicle multi-leases

On 29 March 2004, Inland Revenue issued a public ruling, BR Pub 04/03: Fringe benefit tax and motor vehicle multi-leases. The ruling applies from 29 March 2004 to 28 March 2009.

A number of motor vehicle lessors offer products where a lessee enters into a lease for a specified period (for example, 12 months), with the option or possibility of entering into further leases for pre-specified periods (for example, two further possible leases of 12 months each).

There are similar "multi-lease" products available where the lease periods are flexible, usually varying in period from six months to 75% of the vehicle's depreciable estimated useful life. The lease periods under these "flexible term" multi-lease products are specified before they begin, and are only flexible in the sense that the lessee may assess their requirements towards the end of any given stipulated period, and select an appropriate term for the next period, if one is wanted.

Where a lessee under a multi-lease product in turn provides the motor vehicle to one of their employees for their private use or enjoyment, or makes the motor vehicle available for such private use or enjoyment, a "fringe benefit" arises for the purposes of the FBT rules.

The ruling states that the market value of motor vehicles leased under the product is determined on the date on which each lease under the multi-lease product begins.

This ruling was published in our Tax Information Bulletin (TIB), Vol 16, No 3. (April 2004) you can find this in the Newsletters and Buleltins section of our site. You can get the TIB from our website or you can ask for a copy of the ruling to be emailed to you from rulings@ird.govt.nz

FBT prescribed interest rate for loans

For the quarter beginning 1 April 2004 the prescribed rate of interest for calculating the fringe benefit value of low-interest loans to employees is 7.30%. This is an increase from the previous quarter's rate of 7.08%.