FBT is designed to ensure the tax system does not favour cash or non-cash remuneration, this is a necessary design of the tax system. Perhaps by design or simplicity, there is a general view in New Zealand that employers prefer to pay employees in cash – this simplistic approach takes away the subjective value in the eyes of the beholder of non-cash benefits (e.g. the car park one employee loves is worthless to someone without a car, a company car is more burden than benefit to someone living inner-city without a car park).

The Review calls out FBT as complex, “being both difficult to understand and hard to comply with”. That’s definitely the feedback that we receive, with even the most sophisticated employers often stumped by whether something falls within the FBT or PAYE or Entertainment regimes, and why there are different outcomes under each. Another common gripe is the extension of FBT to items that would not be considered remunerative to most people, such as flowers for a family bereavement. The rules for determining when a motor vehicle fringe benefit arises are called out as being complex, illustrated by Inland Revenue having issued a 57-page guidance item on this topic.

In absolute dollar terms, FBT revenue has increased over the last 12 years (rising 24% to $592million in 2012/20), but proportionately FBT is a tiny fraction of total tax collected (it is only 0.9% of total tax) and that proportion has been steadily dropping. This reduction in proportional FBT collections could have several explanations: (a) people are paying employees more in cash than kind, (b) people are not complying with FBT rules, or (c) something else. There isn't sufficient data available to Inland Revenue to actually conclude on this.

A common perception of stakeholders is that FBT is not being enforced. It is rarely raised in audits despite many holding the belief that FBT is not complied with, particularly the work-related vehicle exemption. Ultimately, if taxpayers think that one area of tax is not being enforced this can undermine the integrity of the whole tax system. However, the Review notes that the declining importance of FBT as a revenue source relative to other tax bases can make the decision to increase spending on FBT compliance management difficult. Despite this, the Review does recommend that FBT is included in a future operations work process and it notes that Inland Revenue has prepared a marketing campaign that focuses on “common errors in FBT”, expect to see this later in 2022 (and see below for our own assessment of common errors).

In light of the above, the Review does recommend that FBT come under the spotlight of a policy review of some sort – at a minimum reviewing thresholds and compliance costs, through to a full policy review of the whole regime. Whether this recommendation is taken up is in the hands of the Government, as they determine what is included in the Tax Policy Work Programme and the priority of items. Given the perceptions of FBT having low compliance, operational steps must be taken in relation to compliance and enforcement; however, the timing of this needs to fit logically with whatever decision is made about a policy review.

What we do know is that Inland Revenue does intend to publicise common FBT errors, based on our experience, what do we expect to make the list?

• Incorrectly believing the work-related vehicle definition applies to a vehicle, and, in particular, all that is required is a sign-written use.
• Thinking there is an exemption from FBT on any day that an employee with a motor vehicle is away on holiday and the vehicle is left at home.
• Calculating the number of days a motor vehicle is “available for use” incorrectly, and having an error in the motor vehicle formula (e.g. subtracting the number of exempt days from 90 and/or using the number of days in the quarter rather than 90 as the denominator).
• Forgetting to increase the value of benefits in the general ledger by GST before calculating FBT.
• Thinking that FBT does not apply to the provision of goods that the business manufactures on the basis that these are provided for “marketing purposes”.
• Providing employees with a prezzy-card and incorrectly returning GST on this benefit.
• Paying FBT on insurance premiums over the term of the insurance rather than when the premium is paid.
• Believing that the de minimis threshold allows unclassified fringe benefits to be exempt from tax provided that no employee has received more than $300 of benefits in a quarter, regardless of the total spend overall. As well as forgetting that all associated employers need to be factored in when determining whether the de minimis exemption has been complied with.
• Incorrectly thinking that the de minimis exemption or a specific FBT exemption allows a benefit to be provided without tax when the FBT regime does not actually apply and the benefit is subject to PAYE.
• Assuming the formulas in last year’s excel spreadsheet are still correct and not checking them when FBT rates change.

For more information about the Review or common FBT errors please contact your usual Deloitte advisor.