Health and safety benefits in dangerous tax territory

The fringe benefit tax (FBT) regime continues to confuse employers, and the latest Inland Revenue guidance is likely to lead to some employers continuing to be puzzled. In October the draft statement “When does the fringe benefit tax exclusion for benefits relating to health or safety apply?” was released for consultation.

This item was released due to uncertainty about the breadth of the exemption, likely due to some employers taking liberal interpretations of what is required under health and safety legislation and using this as a justification for an FBT exemption.

What is the health and safety exemption from FBT?

FBT does not apply to the extent a benefit is:

1. Related to an employee’s health or safety;
2. Aimed at managing risks to health and safety in the workplace as provided under the Health and Safety at Work Act 2015; and
3. Would be excluded by the on-premises exemption if the benefit had been provided on the employer’s premises. The on-premises exemption applies to benefits other than travel, accommodation, and clothing which are provided and used or consulted by the employee on the employer’s premises.

The exemption exists to exempt minor benefits rather than benefits which provide employees with a substantial private benefit.

How does the exemption apply

One of the key matters for employers to consider is whether benefits which are being provided are satisfying all three requirements of the legislation and the benefit is sufficiently connected to mitigating a particular health or safety risk. A benefit which is targeted toward “general health and wellbeing” is unlikely to qualify.

In all cases, it’s important for employers to consider their own facts and circumstances when assessing whether the exemption applies as the treatment will vary between employers and the type of health and safety risks that are present. The draft statement states “[w]here employers treat a benefit as excluded from FBT under the health and safety exclusion they are encouraged for FBT purposes to prepare and maintain documentation that identifies the risk to health or safety in the workplace and how the benefit they provide is aimed at managing that risk.”

The draft statement provides an overview of scenarios that Inland Revenue have encountered and assesses this against the requirements of the legislation. One important part of element of the legislation is the link to the “on premises” exemption and the non-application of that exemption to clothing. In a health and safety context this may result in perverse outcomes, which we discuss further below.

Common benefits

While noting that each employer’s facts and circumstances may be different, the draft statement provides a table summarising the treatment of common benefits. The table in the draft statement is paraphrased below:

The draft statement also provides five case studies explaining the application of the rules.

Protective clothing

As noted above, the Inland Revenue’s view is that protective clothing is not exempt from FBT under the Health and Safety exemption. The reason for this that the on-premises exemption does not apply to clothing. An alternative outcome is that protective clothing is exempt from FBT by virtue of being “distinctive work clothing”. However, the distinctive work clothing exemption requires:

1. The clothing must be part of a uniform that can be identified with the employer by virtue of the permanent or prominent display of the employer’s name, logo or other identification or colour scheme;
2. It is worn in the course of employment; and
3. It is not clothing that employees would normally wear for private purposes.

While certain items of protective clothing like jackets may be more likely to be branded with a name or logo, as a generalisation it may be unlikely that an employer would have branding applied to things like gloves, hard hats, earmuffs, safety goggles, high-vis vests, steel capped boots etc.

So, if the health and safety exemption, on-premises exemption and distinctive work clothing exemption are all unable to apply to protective clothing and equipment it begs the question as to whether this is a logical outcome, whether there is an alternative answer, and if not, whether the law needs to be amended.

A potential submission point is to ask Inland Revenue to consider whether the very first hurdle of there being “a benefit” has actually arisen when an employer provides safety equipment. If there is no benefit, there is no need to consider exemptions.

Arguably it should not be a benefit to an employee to be provided with the necessities to be protected from losing limbs or toes and protected from head injuries. It is the employer’s obligation under the Health and Safety at Work Act 2015 (section 27) to provide personal protective equipment as an employer who requires an employee to provide their own equipment is liable for a fine of up to $25,000. Because employees are not expected to provide their own protective equipment, it follows that the employee receives no economic advantage from the employer provided equipment. The employer has not reduced an employees need to incur private expenditure.

In our view, if Inland Revenue concludes there is a benefit to the provision of protective clothing there needs to be a law change to explicitly exempt protective clothing from FBT.

Medical expenses following a workplace accident

Another controversial conclusion in the statement is the conclusion that there is a private benefit to an employee when an employer funds the medical costs of an employee following a workplace accident. While good health is obviously viewed as a benefit to an individual, in the situation of an employer assisting to “put right” a workplace accident to reinstate an employee's health, this does not seem like a scenario where FBT should be levied. Again, if it is concluded there is a benefit, a law change is warranted. 

Next steps

Consultation on the draft statement is open until 12 December 2025. Employers should consider what benefits they are providing and assessing compliance with FBT rules based on Inland Revenue’s draft position. As noted in the statement, it is recommended that documentation is held to substantiate the rationale for any exemptions provided.

For more information please contact your usual Deloitte advisor.