Employers may have PAYE and FBT obligations if an employee’s salary sacrifice arrangement is not valid.
What we’re seeing
Some tax agents are providing general advice on applying the FBT exemption to bicycles and other low powered vehicles used by employees mainly to commute to work.
Some of this advice includes commentary on what would be a valid salary sacrifice arrangement.
Complex area of tax
Whether a salary sacrifice is valid depends on the specific facts of each case and is determined by case law.
If a salary sacrifice is not valid, the employer may have PAYE and FBT obligations on the sacrificed amount.
This area of tax can be complex, and we recommend you take care when providing generalised advice on the use of salary sacrifice.
Salary sacrifice may have GST implications
We’ve also noticed some advice on salary sacrifice does not address the potential GST implications.
Where an employee salary sacrifices an amount to buy a bicycle or other low-powered vehicle, the employer may be required to account for GST on the supply, even if the vehicle is provided by a third party.
We do not approve or endorse specific arrangements. However, we do issue product rulings when requested. We’ll review all relevant documents to confirm that the tax consequences, as requested by the product owner, are correct.
There are product rulings relating to bicycles and other low powered vehicles on our Tax Technical website. Please scroll down to see if any apply to your client’s arrangement.
Publications - taxtechnical.govt.nz