Fringe benefit tax (FBT)

Common questions about fringe benefit tax

Note
From 1 April 2009 personal tax rates have changed, so the higher FBT rate of 64% has reduced to 61%. The answers to these questions are using the rates from 1 April 2009 onwards. If you are calculating your FBT requirements for prior to 1 April 2009, you will need to use the previous rate of 64%. Find out more on tax rate changes.

What is fringe benefit tax (FBT)?

A tax on benefits that employees (past, present or future) receive and enjoy as a result of their employment. It includes benefits given to employees or shareholder-employees that are provided through another person.

What is a fringe benefit?

Most benefits given to employees on top of their salary or wages are fringe benefits (perks).

What are my obligations with regard to fringe benefit tax?

As an employer, you must generally pay FBT on the value of any fringe benefits (perks) you give to your employees, shareholders, or other people associated with your business.

How often must I file an FBT return?

Filing of returns is based on whether you file returns, quarterly, income yearly or annually.

I don't provide fringe benefits. Must I still file an FBT return?

If you do not pay fringe benefits, or do not intend to during the year, you can apply for nil status by:

• completing the online Fringe benefit tax election
• telephoning 0800 377 772, or
• writing to us.

If you start providing fringe benefits at any stage, you must tell us immediately, and start filing FBT returns.

Attributed and non-attributed benefits

What are attributed benefits?

An attributed benefit is one that an employee has the principal use or enjoyment of during the year.

Is there a minimum level at which I must attribute a fringe benefit?

Yes, you must attribute benefits once the annual benefits within a particular category for an employee reach a set threshold.

Can I attribute benefits that fall under these threshold levels?

Yes. If you choose to do so, you must attribute the benefits in that benefit category for all employees who receive them.

If I provide a benefit to more than one employee, how can I attribute it?

If the benefit is provided to more than one employee, it must be attributed to the employee who principally uses, enjoys or receives the benefit. If this cannot be determined, the benefit must be pooled.

I provided certain non-attributed benefits (for example, pooled vehicles) to employees, including major shareholder-employees. What rate should I use?

If you can assign the benefits to an individual, use the 49% rate for non-attributed benefits provided to ordinary employees and the 61% rate for those provided to shareholder-employees. If you cannot assign the benefits to an individual and the recipients include a major shareholder-employee, use the single rate (formerly flat rate) of 61% for all the non-attributed benefits.

Filing FBT returns

What are my options for filing FBT returns?

There are three FBT returns: quarterly, income year or annual returns.

Who can file an income year or annual return?

You may qualify to file an income year or annual return if your annual gross tax and ESCT (employer superannuation contribution tax) for the previous year is $500,000 or less, or if you were not an employer in the previous year, or if you are a closely held company and the only benefit provided is the use or availability of a motor vehicle to shareholder-employees for private use and the that liability is for no more than two vehicles.

How can I apply to file yearly returns?

You can apply to file yearly returns in any of these ways:

• complete the online Fringe benefit tax election  
• call 0800 377 772 and advise us you wish to change your filing option
• write a letter telling us which kind of return you would like to file, and how you qualify for this election.

Can I change from annual or income year to quarterly filing?

Any employer that pays fringe benefit tax can choose to file quarterly FBT returns instead of filing annually or by income year.

I am newly registered as an employer. Do I have to file an FBT return?

You can elect not to file these returns on your Employer registration (IR334) form.

FBT rates and payment option

What are the rates for fringe benefit tax?

You have the option of a single rate option of 49%, 61% or an alternate rate (formerly multi-rate) calculation.  The alternate rate calculation is only able to be used in the fourth quarter.

What rate of fringe benefit tax should I use for ex-employees?

It depends on which FBT payment option you have elected. If it is the 61% single rate option, tax the benefits provided to ex-employees at 61%. If it is the alternate rate option, tax at the single rate option of 49%, because these benefits are deemed non-attributed benefits.

What rate of fringe benefit tax do I pay?

You can choose to pay either the single rate option of 61% or the alternate rate calculation process. If you file quarterly returns, your choices in the first three quarters affect which option you can use in the final quarter.

Should I choose to pay the single rate option or use alternate rate calculations to pay fringe benefit tax?

It depends on your particular situation. The alternate rate option may require more record keeping and involves a lengthier calculation process - on the other hand, these demands may be offset by tax savings.

Under what circumstances is it an advantage to use the single rate option of fringe benefit tax?

Using the single rate option may be an advantage if all employees receiving fringe benefits are higher-income earners (over $70,000 annually). Under the alternate rate system, FBT on their fringe benefits will be approximately 61% (assuming non-attributed benefits are not involved), and may involve more record keeping.

Can I still apply the alternate rate calculation if I have used 61% in my first three returns?

Yes, you may choose the alternate rate calculation in the fourth quarter. You will need to attribute these benefits to the individual employee receiving the benefit.

What additional information will I need to complete the alternate rate calculations?

You'll need:

• your completed FBT taxable value calculation sheets
• cash remuneration details for each employee where the fringe benefits they have received have been attributed to them
• the FBT returns from the first three quarters (for quarterly filers only).

Can I make savings if I opt for the alternate rate calculation process?

It may be possible to make savings if most of your employees who receive fringe benefits are lower income earners. You will need to consider your situation to determine whether the savings made by choosing the alternate rate calculation outweigh the administration costs involved.

I am a quarterly filer. If I stop providing fringe benefits, when can I stop filing FBT returns?

If you file quarterly returns and have provided fringe benefits in quarters 1, 2 or 3, you are required to continue filing quarterly returns up to and including the fourth quarter.

You have ceased employing staff and do not intend to employ any more staff in the same income year, you should complete sections A, C and D in the quarter you cease to employ (quarterly filers only).

Where an employer stops employing staff during the tax year an employer can complete a final return using one of the following options:

• the single rate option of 61% - available only if you have used 61% in all other quarterly returns from 1 April.
• the "full" alternate rate calculation process
• the "short form" alternate rate calculation

You might stop employing but still provide benefits to past employees or shareholder-employees. In this case, you must file FBT returns until you stop providing benefits.

I am a yearly filer. If I stop providing fringe benefits, when can I stop filing FBT returns?

If you stop employing and stop providing benefits, you must let us know and file a final return to cover the period up to the date that you stop. If you stop providing fringe benefits but remain an employer and are using the alternate rate calculation process, then your return must be based on the annual cash remuneration of those employees receiving attributed fringe benefits.

A major shareholder-employee of four companies receives a salary from more than one company but only one provides benefits. Are the salaries of the shareholder-employee combined when calculating the fringe benefit inclusive of cash remuneration?

If the companies are not related (that is, an associate or subsidiary of the company is not providing the benefit) then fringe benefit tax is returned by the company that provides the benefit and is only based on the salary provided by that company.

Fringe benefit tax on motor vehicles

When is a motor vehicle subject to fringe benefit tax?

If a business or company vehicle is principally designed for passenger transport and is available to employees, shareholder-employees or their associates for private use, it is liable for fringe benefit tax.

What is cost price?

Cost price of a motor vehicle is the GST inclusive price, costs associated with getting the vehicle on the road as well as any extras fitted, such as body kits, CD player or LPG conversion.

Note: Trade in value is not subtracted from the cost price.

What is tax book value?

Tax book value is a new option available from 1 April 2006 and is based on the vehicles value including depreciation i.e. the value recorded in your financial accounts.

Initially the FBT rate of 36% (or 9% quarterly) will cost an employer more, however it will benefit employers who intend to retain their motor vehicles longer than five years, given the value will decline each year.

If this option is chosen it will apply to all vehicles owned, leased by the employer and for a minimum period of two years. Vehicles will have a minimum value of $8,333 regardless of the book value in the financial accounts to reflect the ongoing benefit of a employer provided vehicle.

What is "private use"?

For the purposes of fringe benefit tax, private use includes travel from or to the employee's home, and any other travel that involves a private or domestic element.

I have leased the company car that is available to my employees. Do I have to pay fringe benefit tax on it?

Leased vehicles have been aligned with vehicles owned by the employer and therefore FBT is calculated using the cost price or tax book value.

Leases (predominantly used by shareholder employees) which are either "nine to five" or "flip flop" i.e leased to the business for the hours of 9.00am to 5.00pm with suspension occurring after 5.00pm are now treated as available for private use and an FBT liability arises. If the vehicle is not available for private use and is not taken home by the shareholder employee or employee then no liability for FBT would be incurred.

Are petrol expenses paid by an employee where the work car is used for private use considered an employee contribution?

An employee has the use of a vehicle but is required to meet the cost of the petrol for all personal usage. In these circumstances the value of the petrol is considered to be an employee contribution. The cost of the petrol may be deducted when calculating the value of the benefit.

How do I work out the taxable value of pooled motor vehicles?

Take the value of the vehicle with the highest value within the pool. The way you calculate the fringe benefit tax payable for the pool then depends on the payment option you have elected.

How are emergency calls treated with my motor vehicle costs?

You can claim a daily exemption from fringe benefit tax where an employee uses a vehicle on an emergency call to provide services essential for maintaining plant or machinery, or that relate to the health or safety of a person. To qualify, the call must be attended between 6 pm and 6 am on any weekday, or at any time on a Saturday, Sunday or statutory holiday (unless it concerns a person's health or safety, when no time restriction applies).

What days qualify for out-of-town travel under motor vehicle daily exemptions?

Where an employee is required to be away from home for a continuous period of at least 24 hours, you can also claim a daily exemption for the day they leave and the day they return.

What rate of fringe benefit tax do I use when major shareholder-employees use a pool of vehicles?

If a major shareholder-employee or an associate is one of the recipients in the pool then the FBT rate is 61%. You may need to create two categories for the purposes of calculating fringe benefit tax in this situation:

• one category for benefits for which a major shareholder-employee or an associate is not one of the recipients - here the single rate option of 49% applies
• another category of benefits for which a major shareholder-employee or an associate is one of the recipients - here the single rate option of 61% applies.

Fringe benefit tax on goods and services

Do I have to pay fringe benefit tax on clothing I supply to my employees?

No, provided the clothing is distinctive work clothing, that is, it forms part of a uniform that is identifiable with the employer because of logos or the pattern, colour scheme or style.

Is the car parking that I provide for my employees subject to fringe benefit tax?

Yes, if you pay for this car parking. However, if you provide car parking on your own or permanently leased premises, you are not liable for fringe benefit tax.

Do I need to pay FBT on an employee's personal usage of an employers computer?

Personal use of an employer owned or leased business tool will be exempt from FBT providing the tools are primarily a business tool and the cost of the tool does not exceed $5,000.

Fringe benefit tax on entertainment

Is there fringe benefit tax on employee entertainment, meals or gifts?

Yes, any entertainment benefits employees consume or enjoy when they choose, and outside their employment duties, is subject to fringe benefit tax.

I provide my staff with food and beverages after work every Friday. Is this expense liable for fringe benefit tax?

If employees can only enjoy this form of entertainment at a set time, the cost is not subject to FBT. However, the tax rules for entertainment expenses apply.

I have a group of companies and we have social gatherings at the various branches to enhance working relationships. Do we still qualify for the on premises exemption?

Amendments in legislation now extend the "on premises" exemption to the premises of other companies in the same group providing there is a 66% or greater common ownership with the employer company.

GST, income tax and fringe benefit tax

Does the taxable value of fringe benefits include GST?

Usually, the taxable value of a fringe benefit includes GST, unless the fringe benefits are GST-exempt (for example, low-interest loans, overseas travel and life insurance).

Can I make an income tax deduction for fringe benefit tax?

Yes, an income tax deduction is available.

 

Date published: 17 Jun 2009

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