Popular employment tax questions

By Robyn Walker, Andrea Scatchard, Sam Hornbrook & Nicole Nathan
 

Each year Deloitte hosts an employment tax refresher and its always one of our most popular events, presumably because employment tax impacts people and if you get something wrong, they might notice and complain… and no one wants that! The larger an employer gets, the quicker a small error can snowball into a much bigger problem. In this article we summarise some of the frequently asked questions at our most recent webinar.

Which regime

• How do I know if something is subject to FBT rather than PAYE?
  The general rule when determining what tax is payable is to look at the legal liability and who’s cost it is. If the employer is paying a cost that has been incurred by the employee, then PAYE should apply; if the employer has incurred a liability, then FBT will apply. For example, if an employer offers to pay an employee’s gym membership this will be subject to PAYE; if an employer goes and organises access to a gym for employees this will be subject to FBT.
  

Motor vehicles

• Are fuel cards subject to FBT?
  Fuel cards associated with employer provided vehicles are not separately subject to FBT – the taxable value calculation includes all costs of running the vehicle, including fuel.
  However where fuel cards are provided to employees who use their own vehicles, the situation is a bit more complicated. To the extent that the value of the fuel card covers work related travel in the employee’s vehicle, no FBT should arise. If a mileage reimbursement was provided instead, this would be exempt from PAYE in accordance with the mileage reimbursement rules. If the equivalent benefit is provided via the employer providing a fuel card this will be exempt from FBT. The FBT rules include an exemption for any benefits which would be exempt if they were provided as a reimbursement or allowance. Any excess over the amount of an exempt mileage reimbursement will be subject to FBT – this ensure that to the extent the fuel card is funding private travel, this is taxed.
  
  
• What happens if an employee is allocated two motor vehicles?
  The mere availability of a vehicle for private use creates a FBT liability. If an employee has two vehicles available to them on any given day FBT will apply to both vehicles.
  
  
• Our business allows employees to charge their own EVs onsite. Does FBT apply?
  Technically the on-premises exemption would not apply to exempt this benefit from FBT because the use of the benefit occurs when the vehicle leaves the employers premises. This is a difficult benefit to measure and is likely to be a low value. Some employers will be able to exempt this using the de minimis rule.
  
  
• Are pooled vehicles FBT exempt if only used for work purposes?
  If a vehicle is not available for private use no FBT will apply. However, home to work travel is considered private travel unless the vehicle is a "work-related vehicle". As such, if a pool vehicle is taken home by an employee because they have a late/early meeting that they need the vehicle for, FBT will apply to that travel.
  
  
• What is the tax book value option for motor vehicles?
  The taxable value of a vehicle can be calculated based on 5% of the GST inclusive cost of the vehicle per quarter (20% per annum) or 9% of the GST inclusive tax book value (36% per annum). When using the tax book value option, the tax book value can’t fall below $8,333 (including GST). The tax book value option will result in lower FBT costs for employers with older vehicles. Once a method is selected for a vehicle, it must be used for at least 5 years.
  
  
• If a work-related vehicle is taken home can the employee stop at the supermarket on the way?
  Incidental private use of a work-related vehicle is permitted. This is generally viewed as being able to “stop along the way” to do a private errand such as stopping at the supermarket. Inland Revenue accept that a deviation of up to both 2km or 5% of the journey is “incidental”.
  
  
• Can employers make employees pay the FBT for personal use at the weekend?
  An employer can consider how the value of providing a vehicle to an employee is factored into an employee’s salary package. Many employers will factor this, and the associated FBT cost, in when negotiating salaries. However, outside of this approach, it’s conceivable that an employer could ask an employee to make a contribution to the running cost of a vehicle if an employer is allowing the employee to use it for private use. Any contribution that an employee pays for use of the vehicle is subtracted from the taxable value of a motor vehicle. For example, a vehicle costing $30,000 (incl. GST) creates a taxable value of approximately $16.67 per day (calculated as $30,000 x 5% / 90); if an employee makes an equivalent contribution to the employer this will remove the FBT liability as the taxable value will be reduced to nil.
  

Car parks

• Do car parks attract FBT?
  Many car parks fall within the “on-premises” exemption from FBT. Inland Revenue have detailed guidance on how this exemption applies to car parks here.

Bikes

• If an e-bike is made available to employees to support health and fitness is this exempt from FBT?
  If an employer provides a bike to employees for the main purpose of commuting between home and work this will be exempt from FBT. If an e-bike is provided predominantly to facilitate an employee exercising then FBT will apply to the use of the bike. More information about the FBT exemption for bikes, scooters and public transport is available here.
  

Insurance

• When is health or life insurance subject to FBT rather than PAYE?
  The answer to this question is the same as the answer above about the general rule. If an employer is the owner of a group health policy this will be subject to FBT, if the employer is contributing toward the cost of the employee’s own health insurance policy this will be subject to PAYE. In order for FBT to apply, the insurance needs to be a policy provided for the benefit of the employee. For example, FBT will not apply to insurance policies where the beneficiary of the policy is the employer, and the employee is not entitled to receive any benefit under the policy.
  
  
• Is income protection insurance subject to FBT?
  Income protection insurance is typically exempt from FBT if it is a policy taken out by the employer. This is on the basis that insurance pay-outs made following an insured event occurring are generally considered employment income of the recipient.

Health & safety exemption

• Is a contribution toward prescription safety glasses exempt from FBT
  Providing a benefit like prescription safety glasses should be exempt from FBT under the health and safety exemption. However, if an employer is technically providing a cash contribution toward glasses that an employee is purchasing this would fall under the PAYE regime. From 1 April 2025 a PAYE exemption now applies to payments to employees that are related to health and safety benefits.

Other benefits

• If an employer provides products to employees that can’t be sold to customers (e.g. wrong labels, close to expiry), would FBT apply?
  When an employer provides goods to an employee the value for FBT purposes will depend on whether the employer manufactured, produced or processed the goods (use the market value) or if they are purchased from a third party (use the GST inclusive cost price). The question seems likely related to someone who is producing products and therefore the relevant value is the market value. If items can’t be sold or can only be sold at a very heavy discount, it is this lower value that should apply not the ordinary retail price of an undamaged item.
  
  
• Is the open v closed loop card treatment a change or has that always been the interpretation?
  Refer to our separate article about open loop cards, here. Previously there has not been any Inland Revenue guidance on open loop cards and most taxpayers therefore assumed they were treated in the same manner as other gift cards and vouchers and subject to FBT.
  
  
• How would you treat an open loop card provided to a contractor?
  On the basis that open loop cards are to be treated as a cash equivalent, the provision of an open loop card to a contractor would have the same treatment as any other payment. That is, if the contractor is of a type listed in the IR330C form, then an additional withhold should be made from a cash payment to cover the tax on the open loop card. If instead a normal store gift voucher was provided, this would be subject to FBT if the contractor is subject to withholding tax.

FBT calculations

• When doing an FBT attribution, what salary data do you use, the total annual salary or the amount actually paid?
  FBT attribution calculations are performed using formulas which look at the actual cash paid to an employee and the value of benefits received. This means that if an employee only worked for part of the year, the FBT rate that applies may be lower than what would apply if the employee had worked the full year and received their full salary.
  
  

The questions and answers in this article are necessarily brief and should be treated as indicative only as tax answers can vary based on facts. If you’ve got more questions about how benefits should be taxed please get in contact with your usual Deloitte advisor.

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