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FBT rates, returns, savings and risks

Author: Mike Williams

Keeping up to date with FBT changes in recent years has been a compliance nightmare for employers, particularly with regard to the drop in personal tax rates and the flow on effect to FBT rates.  We are almost at the end of those changes, but not quite.  For employers that attribute fringe benefits to employees and pay FBT based on the employee’s marginal tax rate, the final quarter FBT return for 2011-12 due on 31 May will encompass the last of those tax rate changes. 

The attribution rates for this year are:

Total income including benefits $

FBT rate

0 – 12,530

11.73%

12,531 – 40,580

21.21%

40,581 – 55,980

42.86%

55,981 upwards

49.25%

Care should be taken to update rates used in attribution calculations last year because those rates were a composite set of rates due to the drop in rates that occurred half way through the 2010-11 FBT year.   

Many employers are paying the flat rate under the impression that the compliance costs of attribution outweigh any cash savings.  Material cash savings are however possible from undertaking the attribution calculation.  In addition, there is a half-way house option that can be taken using a combination of the single rate and the pooling rate.  Under this approach employers continue to pay 49.25% on benefits that cannot be pooled, but pay 42.86% on benefits that can be pooled.  Businesses looking to make cash savings should be exploring these alternative options.

With the 4th quarter return approaching, it’s a good time to review how FBT is managed in your business.  Starting at the top, does the business have a tax policy manual that covers FBT risk?  Have there been changes in staff responsible for preparation of FBT returns and what is their knowledge of the rules?  In these times of rationalisation and cost saving, it is becoming common for the NZ payroll to be processed from offshore.  Often this includes the preparation of the FBT returns.  However the FBT rules in different jurisdictions differ and this often contributes to errors in FBT returns filed. We would recommend these returns be regularly reviewed by a New Zealand tax specialist.

As your organisation looks to prepare the final quarter FBT return over the next month bear in mind the following common errors that crop up each year:

  • Using outdated or old rates for tax calculations and/or low interest loans
  • Paying FBT instead of PAYE or vice versa
  • Fringe benefits are overlooked as information is not reported or communicated across different departments
  • Poor compliance and tracking with regard to the calculation of FBT on motor vehicles
  • Failing to deal with obligations for employees assigned overseas or to New Zealand
  • Incorrectly calculating the di minimis thresholds for unclassified benefits
  • Missing opportunities to pool benefits
  • Omitting or incorrectly calculating GST on fringe benefits provided

For more information on these issues, please contact your Deloitte tax advisor.

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