Recapping Deloitte’s April 2023 FBT and employment taxes webinar

I’m sure that those of you who tuned in to Deloitte’s annual FBT and employment taxes webinar at the start of April are feeling fully refreshed and confident on all things FBT as you get stuck into your end- of-year FBT returns (due 31 May). But for those of you who couldn’t make it (or perhaps for those of you that did but were multi-tasking and missed the vital piece of information you were hoping for to help you complete your FBT return – you know who you are), do not panic for here follows a quick round up of the key issues that were covered, and some of the insights gleamed from the polls conducted during the session.

FBT refresher

What is a fringe benefit

A fringe benefit exists where a benefit is provided to an employee in connection with their employment and it is not specifically exempt from FBT. Benefits that employer’s often provide, that are captured within FBT, include:

• Private use of motor vehicles
• Low or nil interest loans
• Free or discounted goods/services
• Gym memberships
• Free or discounted clothing
• Private use of business assets
• Life and health insurances
• Vouchers/gifts/flowers
• Off-site car parking
• Fuel cards
  

So if you know your employer provides these types of benefits and is not returning FBT on them, there could be a FBT shortfall.

Common FBT exemptions

That said, some of the common benefits listed above may be exempt from FBT depending on the circumstances under which they are provided. Common exemptions from FBT include:

• Benefits provided on premises
• Business tools
• Charitable exemption
• Work related vehicles
• Distinctive work clothing
• Health & safety
• Unclassified benefits de-minimis exemption
  

As with many things in tax, the ‘devil is in the detail’, so if you think one of the above exemptions could apply to any of your fringe benefits, it’s important to be sure of how and when these exemptions apply, and whether or not they will in your particular case. Please get in touch if you would like to discuss your staff benefits and those that might be taxable or exempt.

FBT vs PAYE vs entertainment

I’m often asked where the divide is between FBT, PAYE and entertainment. Based on the examples and polling conducted during the webinar, it seems that this is still an area of confusion for some employers, with about 20% of respondents getting the distinction between FBT, PAYE, and entertainment incorrect, even after a refresher on the rules.

In terms of the FBT vs PAYE divide, the general ‘rule of thumb’ is to follow the contractual arrangement. If the contract for the provision of the benefit is between the employer and the benefit provider, then the benefit will generally be subject to FBT. Take the example of gym memberships; if an employer enters into a contract with the gym to provide access/membership for one of its employees, the cost of that access/membership will be subject to FBT. However, if the employee enters into a contact directly with the gym for their membership, and the employer reimburses them for their membership cost or pays it on their behalf, the cost will be subject to PAYE and not FBT.

In terms of entertainment (broadly the provision of food and drink in this context), items will generally fall into this category if the employee does not have a choice as to when or where to enjoy the entertainment. So, for example, a bottle of wine gifted to an employee will generally be subject to FBT as they can choose when and where to consume it (even if their colleagues pressure them to open it with them after work), but a bottle of wine at a team dinner (and the dinner itself) will be subject to the entertainment regime as there is no choice on the part of the employee as to when and where to enjoy it.

FBT on motor vehicles

Motor vehicles often represent the majority of an employer’s FBT cost. It is also often the area with the most errors. Common errors seen in relation to FBT on motor vehicles include:

• Failure to appreciate that FBT applies to vehicles based on availability for private use, and not actual use.
• Incorrect understanding as to what constitutes private use, especially the work commute.
• Failure to use the GST-inclusive motor-vehicle cost.
• Incorrect calculation of the taxable value.
• Incorrect calculation of exempt days.
• Incorrect application of the work-related vehicle exemption, and/or failure to maintain appropriate documentation in support of this exemption.
  

So, if any of your employees are allowed to take company vehicles home, and you’ve not had your FBT position in relation to motor vehicles reviewed for a while, you should consider getting it reviewed by one of our FBT specialists, even if you think the vehicles are FBT exempt. Since I’m yet to undertake a FBT review with no errors in relation to motor vehicles, I would put money on your FBT positions in relation to motor vehicles being incorrect if you’ve not had a FBT review for a few years.

FBT calculations and cost savings from attribution

FBT costs will have increased for many employers from 1 April 2021 with the introduction of the 39% marginal tax rate for individuals, and so with it the increase in the top rate of FBT to 63.93% (from 49.25%). Attributing benefits to each employee and ensuring they are taxed at the marginal FBT rate that corresponds to their marginal tax bracket is the best way to ensure you minimise the rate of FBT paid on fringe benefits.

Pre April 2021 many employers may have considered and discarded attribution, most likely on the basis that many of their employees were earning close to or more than $70,000 per year and so any difference in FBT payable between attributing or not would have been minimal and may not have outweighed the compliance costs of attribution. Employers in this position would likely have adopted the single rate FBT calculation method, with all benefits taxed at a flat 49.25%.

From 1 April 2021, applying the same approach means the same benefits become taxed at 63.93%. However, because under attribution the top FBT rate of 63.93% applies to those earning more than $180,000 per year, and there are typically only a small proportion of the employee population with annual salaries above this top threshold, performing an attribution calculation for most employers is now more likely to result in FBT savings that do outweigh any additional costs of attribution.

Our poll, conducted during the webinar, showed that about 20% of respondents were still using the single rate attribution method. Again, I’m willing to put money on these employers being able to save on their FBT costs if Deloitte were to perform an attribution calculation for their 2023 quarter 4 FBT return, even taking into account our fees for doing so. As mentioned earlier, the 2023 quarter 4 FBT return isn’t due to be filed until 31 May so if you were one of the 20% still using the single rate, it’s not too late to access the FBT savings from attribution and I encourage you to reach out so you can start saving on your FBT costs now. Even if you have already filed your 2023 quarter 4 FBT return, it’s not too late to approach Inland Revenue to request an amendment to the calculation method so please get in touch if this applies to you.

Hot FBT topics

New FBT exemption for bikes and public transport

Please refer to our recent tax alert article here on the changes to these rules, and some of the practical issues in terms of accessing these new exemptions.

Electric vehicles

Unlike Australia, New Zealand is yet to see any FBT exemptions in relation to electric vehicles. Until we do, we’re left trying to apply existing FBT rules to their use. This not only includes the private use of an electric vehicle under the motor vehicle FBT rules (which were designed with fuel cars in mind), but also extends to the power used to charge the vehicles.

In the context of an employer owned/leased electric vehicle made available for an employee’s private use, issues to consider from an FBT perspective include:

• An increase in FBT costs for the employer since most electric vehicles cost significantly more than fuel cars and FBT liabilities on vehicles are largely driven (no pun-intended!) by their cost.
• An employer charging the vehicle at home which arguably constitutes a contribution to the taxable value of the private use of the vehicle for FBT purposes, reducing the amount of FBT to pay. How do employers put a value on this employee contribution in practice? There are also arguably corporate income tax and GST considerations associated with the employee contribution in the form of power. From a practical perspective, are employers going to bother to capture this? Probably not.
• Employers paying to install vehicle charging units in the employee’s home, and the FBT treatment of this.

In the context of an employee’s own electric vehicle, if the employer allows the employee to charge the vehicle on work premises, this would be a taxable fringe benefit. Could it be exempt under the on-premises exemption? Well since this exemption applies only where the benefit is “used or consumed by the employee on the premises of the employer” there could be an argument that this exemption does not apply as the power is consumed by the employee on the road and off-premises. An alternative view could be that the power is “consumed” on premises by virtue of the battery being charged.
Hopefully we will see further announcements/guidance on these issues and possible concessions around electric vehicles from policy officials in due course, as these vehicles become more and more prevalent on our roads and within employer vehicle fleets. For now, if you have electric vehicles in your fleet and would like to discuss the above issues, please reach out.

Summary

So, if you’re still using the single rate FBT calculation method or you allow your employees to take company vehicles home, and you’ve not had a FBT review within the past three years, I recommend you get in touch with me or one of our FBT specialists as it is likely there will be some FBT errors as well as FBT cost savings available to you. Now’s the perfect time to get your FBT positions reviewed, so that adjustments can be made prior to the filing of the 2023 quarter 4 return due on 31 May. Even if you have already filed this return, there’s still time to submit adjustments, even if they are to your advantage so don’t let this stop you.