Issue 9 December 2004 (FBTnews)

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FBTnews - 2004

Issue 9 December 2004

Goods subject to FBT
Services subject to FBT
General exemption
FBT prescribed interest rate for loans
Would you like to receive FBTnews electronically?
Inland Revenue launches new-look website

Welcome to FBTnews

In this issue we look at the fringe benefit requirements and exemptions when providing goods and/or services to employees.

Goods subject to FBT

If goods are provided to an employee at less than the cost to the employer, this is a fringe benefit. The cost to the employer is usually the price paid to purchase the 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.

Example

XYZ Appliances has a TV display model that has been superseded by a new model. They have offered the display model to an employee at half the retail price. The TV cost XYZ Appliances $1,000 and retails at $1,500, so the cost to the employee will be $750. As the TV is provided to the employee at less than the cost to the employer, the difference of $250 is liable for FBT.

Items of $200 or less

Where an item that normally retails for $200 or less is on "special" to the public and is sold at discount to an employee at the normal staff discount rate, it is not considered to be a fringe benefit. This only applies if the price paid by the employee is equal to, or more than, the lesser of:

95% of the cost price to the employer, or
95% of the selling price to the public, if a reasonable quantity of identical goods is available on special to the public.

Example

Vases R Us Ltd is having a clearance sale of yellow vases:

cost price	$100
normal retail price	$160
sale price to public	$120
normal staff discount @ 20%	$24
cost to employee	$96

As the price paid by the employee is more than 95% of the cost price to the employer, there is no FBT payable.

Goods not on special that are sold to employees at less than cost price are exempt from FBT if:

the goods are sold as part of the employer's normal business, and
the normal retail price of the goods is $200 or less, and
the discount is the usual staff discount, and the staff discount is not more than 5% of the price to the public.

Example

Garden City attracts customers to their store by offering certain merchandise at very competitive prices. One such item is a specially designed garden fork:

cost price	$170
retail price	$175
normal staff discount @ 4%	$7
cost to employee	$168

As the discount given to the employee is the usual staff discount of not more than 5% of the retail price, Garden City would not be liable for FBT.

Services subject to FBT

A service provided to an employee at less than the normal cost to the public is a fringe benefit.

Services may include gifting schemes (such as long-service awards), incentive vouchers, club memberships and accompanying travel by the employee's spouse, partner or family.

If someone else provides the service on behalf of the employer, the value of the benefit is the amount paid by the employer to that supplier. If the employer and the supplier are associated, the fringe benefit value is the value of those services to the general public.

Example

The Manager of Traina Gym receives an annual gym membership as part of his salary package. As the cost of an annual membership to the general public is $900, this is the fringe benefit value.

General exemption

If you are providing benefits to employees which are goods and/or services and those goods and/or services are under a certain value, you may qualify for an exemption from FBT.

There is a $75 exemption per employee per quarter for fringe benefits that are goods and/or services. However, if the value of the benefits for any employee goes over $75 for a quarter, the full value of the benefits is subject to FBT and the exemption does not apply.

Example

Employees	D Steel	N Harris
Incentive voucher	$70	$70
Clothing	-	$300
Total for quarter	$70	$370
Exemption available	$70	Nil

There is no exemption for N Harris, as the total value of benefits is over the $75 maximum.

Quarterly filers - maximum exemption

The maximum exemption an employer can claim is $450 per quarter. If the total value of benefits for all employees goes over $450 for a quarter, the employer must pay FBT on the total value of the goods and/or services.

Annual or income year filers - maximum exemption

Employers who file annual or income year returns have a yearly exemption of $300 for each employee, with the maximum exemption for all employees of $1,800 per year.

If all fringe benefits you provide are covered by exemptions you can elect the "not liable for FBT" option on the Fringe benefit tax election (IR414) form. You can get this form by phoning INFOexpress on 0800 257 773 or you can complete it online. Once we receive your election we will stop sending you FBT returns. If, in the meantime, you have received a return, you will need to complete it as a nil return and send it back to us.

FBT prescribed interest rate for loans

For the quarter beginning 1 October 2004 the prescribed rate of interest for calculating the fringe benefit value of low-interest loans to employees is 8.02%. This is an increase from the previous quarter's rate of 7.5%.

Would you like to receive FBTnews electronically?

If you or someone you know, would like to receive FBTnews electronically you can subscribe to it at our website.

Simply give us your email address in the box provided and click the "OK" button.

We'll still continue to send you the printed version of FBTnews.

Inland Revenue launches new-look website

We are launching an exciting, new-look website developed to provide you with a better online experience.

Navigating your way around has been made easier and you can now move backwards and forwards through the site without losing your place. From the homepage you can quickly access information based on your needs.

Other new features on the homepage include:

quick and easy-to-access answers to all your frequently asked questions
reminders of due dates
news and promotional items.

We have also improved our search facilities. You now have three different search options: A - Z directory, site map and top 10 searches.

Businesses can easily and quickly access information in two ways - through the main site navigation at the top of the homepage, or through the utilities area on the right of the homepage.

The main navigation provides links to information about business tax, GST, depreciation, employer deductions and other business-related subjects. The utilities area gives you direct access to all forms and guides, calculators and online services, including ir-File and Account Lookup.

You'll be able to preview the new-look site from 12 December. Next time you visit www.ird.govt.nz click on the link to the new site and let us know what you think.

We wish all readers a safe and enjoyable holiday break.