Fringe benefit tax – a trans-Tasman guide

By Robyn Walker & Rhys Cormick

Fringe benefit tax (FBT) can be confusing at the best of times, but when you throw in the mix the need to consider tax rules in different countries there is a greater risk of something going awry. The close economic relationship between New Zealand and Australia has led to a scenario where there are many Australian’s preparing New Zealand FBT returns, and also New Zealander’s preparing Australian returns. The decision to prepare a tax return for another country's tax rules shouldn’t be taken lightly; however, it seems there is a bit of a “she’ll be right, mate” attitude when it comes to FBT… because… well, how different could they be?

The New Zealand Inland Revenue has recently started issuing taxpayers with questionnaires with a specific question about whether tax returns are prepared offshore, and we understand a red flag is raised when it comes to New Zealand FBT returns prepared from Australia.

Deloitte New Zealand and Australia have joined forces to provide a high-level summary of how FBT applies on either side of the ditch. If returns have been prepared without seeking professional advice, it is timely to consider undertaking an FBT review to ensure you’re paying tax on the right benefits on each side of the Tasman.

Core concepts

Without delving deep into the history books, it seems reasonable to start from the position that FBT in each country has a similar genesis. As we’ve previously explained, FBT commenced in New Zealand on 1 April 1985, and Australia enacted its FBT rules in 1986. The basic concepts of when the FBT rules apply in each country are extremely similar: there must be a benefit provided to an employee (or associate), by an employer (or an associate, or under an arrangement) and the benefit must be provided in relation to the employment of the employee. However, aside from these basic concepts, the approach to fringe benefits in each country diverges in some significant ways.

In New Zealand, the FBT rules are included within the Income Tax Act 2007, in sections CX 2-CX 39 (what is a fringe benefit) and RD 25-RD 63 (calculation rules). These rules are petite in comparison to the approach in Australia where the Fringe Benefits Tax Assessment Act 1986 is broken into two volumes and runs to a combined 469 pages.

The New Zealand approach is possibly best described as being broad, with a few meaningful exemptions, whereas Australian FBT has many exemptions. This approach also needs to be seen in the context of other differences in approaches to tax, such as:

• Australia allows employees to claim tax deductions for costs associated with earning employment income, whereas New Zealand does not allow any deductions (with an exception for certain types of income protection insurance). The availability of personal tax deductions in Australia has led to allowing FBT exemptions for amounts which would otherwise be tax deductible if incurred by the employee.

• Australia taxes ’entertainment’ as FBT, whereas New Zealand deals with entertainment through denied income tax deductions at the business level.

• Australia generally treats all non-cash benefits through the FBT system, whereas in New Zealand benefits could be subject to either FBT or Pay As You Earn (PAYE) depending on the legal form of how the benefit is provided (e.g. expenditure on account of an employee, reimbursements and allowances are all taxed though the PAYE system).

• Australia has rules which facilitate ‘salary packaging’ which means in many instances a lot of benefits, including vehicles, may fall outside of the FBT regime. This generally does not occur in New Zealand because of the few available exemptions.

• Australia has extensive requirements in relation to reporting the allocation of fringe benefits in respect of an employee to the Australian Tax Office (ATO) via a Reportable Fringe Benefits Amount (RFBA) which is assessed for government benefits and payments. Whereas in New Zealand, no data is provided about benefits (a proposal was made to do this but abandoned in 2013 due to excessive compliance costs).

Treatment of common benefits

In New Zealand, anything provided in connection with employment is potentially a fringe benefit, whereas in Australia FBT applies on non-cash benefits, reimbursements and Living-Away-From-Home Allowance (LAFHA). We’ve set out below a brief summary of how FBT applies on either side of the Tasman for the most common benefits.

This guide is indicative only, FBT rules can contain a number of exemptions, exclusions and valuation rules which may alter the conclusion based on your facts, so please seek guidance.

Motor vehicles

• New Zealand: FBT is a payable on any day that a vehicle is available for private use (regardless of actual use). The main exclusion is for Work Related Vehicles, and vehicles can also be exempt on days they are used for travel away from home for more than 24 hours or used for an emergency call out. FBT is calculated in the same way for all vehicles (with calculation options). There are no specific exemptions for electric vehicles.

• Australia: FBT is payable on car fringe benefits (as defined). There are two calculation options, being the statutory formula method and the operating cost method. Cars are a fringe benefit which is frequently salary packaged in Australia.

Car parks

• New Zealand: car parks are subject to FBT but may be exempt under the ‘on premises’ exemption.

• Australia: car parking fringe benefits are subject to FBT. To assess whether a car parking fringe benefit arises, consideration is required for whether there is a commercial car parking station within a 1km radius that charges above the relevant threshold for the year. There are different ways of valuing car parking fringe benefits, including obtaining a market valuation. 

Public transport and self- and low-powered vehicles

• New Zealand: specific exemptions exist for the provision of public transport, bicycles and scooters which are provided for the main purpose of travel between home and work.

• Australia: Public transport and low-powered vehicles for home to work travel is generally subject to FBT in Australia, subject to limited exemptions including the ‘minor and infrequent rule’ and public transport for police.

Insurance

• New Zealand: the provision of insurances, such as life insurance or health insurance, is subject to FBT. Income protection insurance may be exempt from FBT if it is a policy where any proceeds will be taxable to the employee.

• Australia: as with New Zealand, the provision of insurances such as life insurance or health insurance are subject to FBT. Group insurance policies where the employer is the policy holder and beneficiary may generally be exempt from FBT.

Health and safety related benefits (vaccinations, eye tests, safety gear etc)

• New Zealand: an exemption applies to certain benefits which are provided to manage risks to health and safety in the workplace. What specific items are exempt can vary based on the employer’s context.

• Australia: an exemption applies for work related medical examinations, screening, preventative health care and work-related counselling.

Loans

• New Zealand: loans to employees are subject to FBT where the interest rate charged is below the prescribed interest rate (currently 8.41%). Limited exemptions exist, including for employee share loans, PAYE overpayments, salary advances of $2,000 or less.

• Australia: loans to employees are subject to FBT where the interest rate charged is below the statutory interest rate for the year (currently 8.77% for the FBT year ending 31 March 2025). Limited exemptions exist, including the otherwise deductible rule, where the loan is provided for a deductible purpose.

Staff events

• New Zealand: ‘entertainment’ is only subject to FBT where the employee doesn’t enjoy the entertainment as part of their employment duties, and they can choose when to enjoy the benefit (e.g., they are given a restaurant voucher). All other entertainment benefits are ‘taxed’ through the entertainment expenditure rules which deny 50% of the tax deduction for certain costs. FBT may apply to any entertainment which occurs outside New Zealand.

• Australia: entertainment by way of food, drink or recreation is considered subject to FBT. Entertainment can be considered under the ‘actual’ method as a property, residual or expense payment fringe benefit. Alternatively, entertainment can be taxed as a meal entertainment benefit, using the 50/50 method or the 12 week register method. Selecting a method may be dependent on the records available to the employer, and the proportion of employee to non-employee attendees.

Accommodation

• New Zealand: accommodation is not subject to FBT, instead the PAYE regime applies.

• Australia: accommodation may be subject to FBT as a housing fringe benefit where it is the usual place of residence of the employee. Exemptions can apply, including where the housing benefit is in a remote area.

Staff discounts and miscellaneous benefits

• New Zealand: these are referred to as ‘unclassified benefits’, and are subject to FBT unless an exemption or the de minimis rule applies. Possible exemptions apply for benefits provided ‘on premises’, business tools, distinctive work clothing and discounts provided by third parties which are offered to other groups of employees. A de minimis rule may apply when total unclassified benefits over the previous 12 months do not exceed $22,500. The de minimis rule will not apply to any employee who receives over $300 of benefits in any quarter.

• Australia: exemptions can apply for property consumed on business premises, as well as reductions in taxable value for in-house benefits.

Calculations and returns

In New Zealand, most employers file FBT returns quarterly, with the FBT year running from 1 April to 31 March. Returns are due on 20 July, 20 October, 20 January and 31 May. Smaller employers have the option of an annual filing. FBT is paid at the flat rate of either 49.25% or 63.93% on all benefits provided in quarters 1 – 3; in the final quarter employers have the option to pay FBT at 63.93% or undertake some form of FBT attribution. FBT attribution allows FBT to be paid at a rate which better approximates the marginal tax rate of the employee receiving the benefit. Details about FBT attribution options can be found here.

In Australia the FBT year runs on the same 1 April – 31 March timetable as New Zealand, however the approach to returns is different. An annual FBT return is due on either 21 May (where self-lodging) or 25 June (when using a tax agent), however instalments of FBT are paid quarterly through the Business Activity Statement based on the level of FBT paid in the prior year or the expected FBT liability. FBT is payable on the taxable value of benefits. The taxable value is required to be multiplied by a gross up rate of 1.8868 or 2.0802 (depending on whether GST input tax credits can be claimed) and then a flat FBT rate of 47% is applied to all benefits. These rates are linked to the top marginal tax rate, therefore to the extent tax rates change, these rates will vary accordingly.

Got questions?

With the number of differences in how FBT operates in each country, it would not be surprising if errors are made. With tax authorities potentially directing more attention to businesses preparing returns offshore, it would be timely to consider undertaking an independent review of FBT. An FBT review can help identify not just instances where FBT has been underpaid, but also instances where FBT is being paid unnecessarily, and, in New Zealand, can provide guidance on options to save FBT through using attribution options.

Please get in touch with your usual Deloitte advisor for more information about how we can help.