FBTnews - 2005
Issue 13 December 2005
In this issue:
- New look fringe benefit tax return
- Staff functions
- Calculating fringe benefit tax on low-interest loans
- Completing the Fringe benefit tax quarterly return (IR420) for December 2005
- Fringe benefit tax (FBT) proposed changes
- FBT prescribed interest rate for loans
Welcome to FBTnews
If you have an FBT topic you'd like to see in the newsletter you can write to the Editor, FBTnews, PO Box 2198, Wellington or email us at fbt.news@ird.govt.nz and we'll aim to cover the topic in a future edition.
New look fringe benefit tax return
We have changed the design of FBT returns as the printers we use to print the old returns are becoming out-of-date and will soon no longer be available. The new printers are unable to duplicate your preprinted information (your name and address) in exactly the same place on the bottom copy of the return as on the top, so we've used a similar design to that of the GST return.
The changes we've made do not affect the information you provide or the way you complete your return.
What's changed?
- The preprinted details on your copy have been moved and are now printed vertically on the right-hand side. This information is retained with the carbonised bottom copy of the return.
- The return is now perforated about 2cm in from the right-hand edge. You need to open the return from the left-hand side and detach the top copy at the perforation.
- You retain the right-hand edge with your preprinted details, along with the carbonised bottom copy.
All FBT returns, including annual and income year returns issued from December onwards, will be in the new design.
Staff functions
At this time of year you may be hosting Christmas functions for your staff and want to know about the tax implications.
Generally Christmas functions which employees can only enjoy at a set time, held either at your business premises or elsewhere, are included as entertainment expenses and the food and drink provided is 50% deductible for income tax and not liable for FBT.
Any entertainment benefit that employees consume or enjoy at their discretion, and outside their employment duties, is subject to FBT. If the entertainment is subject to FBT it will generally be fully deductible for income tax.
Our guide Entertainment expenses (IR268) will give you more information.
Calculating fringe benefit tax on low-interest loans
If you make low-interest loans to your employees the taxable value of the fringe benefit is the difference between the interest calculated on the daily balance of the loan for the quarter or income year, using the prescribed rate of interest for that period, and the interest actually charged on the loan for the quarter or income year.
Our Fringe benefit tax on low-interest loans calculation sheet under Work it out, will calculate the difference for you and provide a printed schedule for you to keep with your records.
Before you can complete the calculation sheet you will need to calculate the amount of interest for the period at the prescribed rate and the amount of interest actually charged for the period.
Example
Calculation of interest at prescribed rate for the quarter.
| Loan balance at beginning of quarter | $50,000 |
| Repayment at mid-point of quarter | $ 2,000 |
| Balance at end of quarter | $48,000 |
| Prescribed rate of interest 9.01% | |
| 46 days x 9.01 x $50,000/365 | $ 567.75 |
| 46 days x 9.01 x $48,000/365 | $ 545.04 |
| Enter this total in the prescribed rate column in the calculation sheet | $1,112.79 |
Calculation of actual interest charged for the quarter.
| Loan balance at beginning of quarter | $50,000 |
| Repayment at mid-point of quarter | $ 2,000 |
| Balance at end of quarter | $48,000 |
| Actual rate of interest 7.8% | |
| 46 days x 7.8 x $50,000/365 | $491.50 |
| 46 days x 7.8 x $48,000/365 | $471.84 |
| Enter this total in the actual interest column in the calculation sheet | $963.34 |
FBT is charged if the actual interest is less than the interest calculated using the prescribed rate.
If you are completing your FBT return online include this amount in the second box in panel D "Fringe benefits that ARE NOT liable for GST".
If you are completing your return manually you need to include this amount in Box 3 of your FBT return. This amount is then excluded from the GST on taxable value of fringe benefits calculation further down the page.
Completing the Fringe benefit tax quarterly return (IR420) for December 2005
The Fringe benefit tax quarterly return (IR420) is divided into four sections. For quarters 1, 2 and 3 you need to complete sections A, B and D.
The return for the period 1 October 2005 to 31 December 2005 is for quarter 3, so you need to complete sections A, B and D.
In section B you indicate which fringe benefit tax rate you are using for the quarter, either 64% or 49%.
Please note that section C is only completed in the 4th quarter return (1 January 2006 - 31 March 2006), which is due on 31 May 2006. Section C contains the multi-rate option which can only be used in quarter 4.
Fringe benefit tax (FBT) proposed changes
In the September issue of FBTnews we provided an overview of proposed changes relating to FBT, designed to reduce compliance costs and remove anomalies.
We've again summarised these changes in this issue, for those who may not have seen the September issue. It is proposed that these changes will apply from 1 April 2006. We'll provide more information in future issues of FBTnews.
Key features of the proposed amendments applying to motor vehicles:
- Calculating the fringe benefit based on either the vehicle's tax book value or as at present its cost price.
- Under the cost price option, the rate applied to the fringe benefit will reduce from 24% to 20%. The equivalent rate for the tax book value option will be 36%.
- Aligning the fringe benefit treatment of leased vehicles with that of owned vehicles.
- Employers can elect start time of FBT day.
Other amendments:
- Exempting the private use of employer-provided business tools valued at under $5000 that are primarily used for business purposes.
- Increasing the general exemption applying to goods and services provided to employees.
- Exempting health and safety related benefits regardless of where they are provided.
- Option of valuing the benefit of loans to employees at either the market rate or prescribed rate of interest.
- Allowing employees to claim an income tax deduction for income protection premiums paid by employers on their behalf.
- Clarifying that FBT does not apply where employer secures bulk discounts or provides services to employees provided they are available to other groups of a comparable size on an arm's-length basis.
- Providing an exemption from FBT where the employer pays for a family member to visit an employee who is required to work out of town.
- Restricting the exemption from FBT currently available for employees of charitable organisations who are provided with credit cards and other short-term credit facilities.
- Clarifying that share options cancelled in exchange for cash are a "disposal" and therefore income to the employee.
- Allowing FBT elections to be made or changed over the phone.
- Extending the scope of the general anti-avoidance rule to cover FBT.
- Extending the "on premises" exemption to other companies in the same group.
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 9.01% for the quarter beginning 1 October 2005.
We wish all readers a safe and enjoyable holiday break.
Kathleen Clement
Manager
Deliver, Planning and Initiation
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Date published: 07 Dec 2005
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