Common questions about fringe benefit tax

On this page:

• What is fringe benefit tax (FBT)?
• Attributed and non-attributed benefits
• Filing FBT returns
• FBT rates and payment options
• Fringe benefit tax on motor vehicles
• Fringe benefit tax on goods and services
• Fringe benefit tax on entertainment
• GST, income tax and fringe benefit tax

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What is fringe benefit tax (FBT)?

A tax on benefits that employees (past, present or future) receive and enjoy as a result of their employment. It includes benefits given to employees or shareholder-employees that are provided through another person.

What is a fringe benefit?

Most benefits given to employees on top of their salary or wages are fringe benefits (perks).

What are my obligations for FBT?

As an employer, you must generally pay FBT on the value of any fringe benefits (perks) you give to your employees, shareholders, or other people associated with your business.

How often must I file an FBT return?

Filing of returns is based on whether you file returns, quarterly, income yearly or annually.

I don't provide fringe benefits. Must I still file an FBT return?

If you do not pay fringe benefits, or do not intend to during the year, you can apply for "Nil" status by:

• completing the online Fringe benefit tax election form - go to Get it done online on the  Inland Revenue website
• phoning Inland Revenue on 0800 377 772, or
• writing to Inland Revenue.

If you start providing fringe benefits at any stage, you must tell Inland Revenue immediately, and start filing FBT returns.

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Attributed and non-attributed benefits

What are attributed benefits?

An attributed benefit is one that an employee has the principal use or enjoyment of during the year.

Is there a minimum level that I must attribute a fringe benefit at?

Yes, you must attribute benefits once the annual benefits within a particular category for an employee reach a set threshold.

Can I attribute benefits that fall under these threshold levels?

Yes. If you choose to do so, you must attribute the benefits in that benefit category for all employees who receive them.

If I provide a benefit to more than one employee, how can I attribute it?

If the benefit is provided to more than one employee, it must be attributed to the employee who principally uses, enjoys or receives the benefit. If this cannot be determined, the benefit must be pooled.

I provided certain non-attributed benefits (for example, pooled vehicles) to employees, including major shareholder-employees. What rate should I use?

When using an alternate rate calculation process for the fourth quarter or annual/ income year returns, if you:

• can assign the benefits to an individual, use:
  • the 45.99% rate for non-attributed benefits provided to ordinary employees, and
  • the 55.04% rate for those provided to shareholder-employees
• can't assign the benefits to an individual, and the recipients include a major shareholder-employee, use the single rate of 55.04% for all the non-attributed benefits.

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Filing FBT returns

What are my options for filing FBT returns?

There are three FBT returns: quarterly, income year or annual returns. 

Who can file an income year or annual return?

You may qualify to file an income year or annual return if:

• your annual gross tax and ESCT (employer superannuation contribution tax) for the previous year is $500,000 or less, or
• you were not an employer in the previous year, or
• you are a closely-held company and the only benefit provided is the use or availability of a motor vehicle to shareholder-employees for private use and the that liability is for no more than two vehicles.

How can I apply to file yearly returns?

You can apply to file yearly returns by:

• completing the online Fringe benefit tax election  form - go to Get it done online on the Inland Revenue website
• calling Inland Revenue on 0800 377 772 and advising them you wish to change your filing option
• writing a letter telling Inland Revenue which kind of return you would like to file, and how you qualify for this election.

Can I change from annual or income year to quarterly filing?

Any employer that pays fringe benefit tax can choose to file quarterly FBT returns instead of filing annually or by income year.

I am newly registered as an employer. Do I have to file an FBT return?

You can elect not to file these returns on your Employer registration (IR334) form. You can get one from Forms and guides on the Inland Revenue website.

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FBT rates and payment option

What are the rates for FBT?

For quarterly filers, from 1 October 2010 the single rate changes from 61% to 49.25% and the alternate rate changes from 49% to 43%.

For annual or income year filers not using an alternate rate calculation the rate for 2010-11 is 55.04%.

The alternate fringe benefit rates for the 2010/11 year onwards have changed in line with the new annual personal income tax rates.

What rate of FBT should I use for ex-employees?

It depends on which FBT payment option you have elected.

If you file quarterly and have elected the single rate option, you tax the benefits provided to ex-employees at 49.25% (61% up to quarter ending 30 September 2010).

If you file on an annual or income year basis, you tax the benefits provided to ex-employees at 55.04% for 2010-11.

If you are filing an annual, income year or fourth/final quarterly return and have elected the alternate rate option, you tax at the alternate FBT rate of 45.99% for 2010-11, because these benefits are deemed non-attributed benefits.

What rate of FBT do I pay?

You can choose to pay either the single rate option or the alternate rate. If you file quarterly returns and you choose to use the alternate rate in any of the first three quarters you must use a "short form" or "full" alternate rate calculation process in the final quarter.

Should I choose to pay the single rate option or use alternate rate calculations to pay FBT?

It depends on your particular situation. The alternate rate option may require more record keeping and involves a lengthier calculation process. On the other hand, these demands may be offset by tax savings.

When is it an advantage to use the single rate option of FBT?

Using the single rate option may be an advantage if all employees receiving fringe benefits are higher-income earners (over $70,000 annually).

Under the "short form" alternate rate system, FBT on their fringe benefits will be 55.04% (assuming non-attributed benefits are not involved), and may involve more record keeping.

Under the "full" alternate rate system, FBT on their fringe benefits will be aligned to their personal income tax rates.

Can I still apply the alternate rate calculation if I have used single rate option in my first three returns?

Yes, you may choose the alternate rate calculation in the fourth quarter. You will need to attribute these benefits to the individual employee receiving the benefit.

What additional information will I need to complete the alternate rate calculations?

You'll need:

• your completed FBT taxable value calculation sheets
• cash remuneration details for each employee where the fringe benefits they have received have been attributed to them
• the FBT returns from the first three quarters (for quarterly filers only).

Can I make savings if I opt for the alternate rate calculation process?

It may be possible to make savings if most of your employees who receive fringe benefits are lower income earners. You will need to consider your situation to determine whether the savings made by choosing the alternate rate calculation outweigh the administration costs involved.

I am a quarterly filer. If I stop providing fringe benefits, when can I stop filing FBT returns?

If you have ceased employing staff and do not intend to employ any more staff in the same tax year, you should complete sections A, C and D in the quarter you cease to employ (quarterly filers only).

Where an employer stops employing staff during the tax year an employer can complete a final return using one of the following options:

• the single rate option of 49.25% - available only if you have used the single rate option in all other quarterly returns from 1 April
• the "full" alternate rate calculation process
• the "short form" alternate rate calculation.

You might stop employing but still provide benefits to past employees or shareholder-employees. In this case, you must file FBT returns until you stop providing benefits.

I am a yearly filer. If I stop providing fringe benefits, when can I stop filing FBT returns?

If you stop employing and stop providing benefits, you must let us know and file a final return to cover the period up to the date that you stop. If you stop providing fringe benefits but remain an employer and are using the alternate rate calculation process, then your return must be based on the annual cash remuneration of those employees receiving attributed fringe benefits.

A major shareholder-employee of four companies receives a salary from more than one company but only one provides benefits. Are the salaries of the shareholder-employee combined when calculating the fringe benefit inclusive of cash remuneration?

If the companies are not related (that is, an associate or subsidiary of the company is not providing the benefit) then fringe benefit tax is returned by the company that provides the benefit and is only based on the salary provided by that company.

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FBT on motor vehicles

When is a motor vehicle subject to FBT?

If a business or company vehicle is principally designed for passenger transport and is available to employees, shareholder-employees or their associates for private use, it is liable for fringe benefit tax.

What is cost price?

Cost price of a motor vehicle is the GST-inclusive price, costs associated with getting the vehicle on the road as well as any extras fitted, such as body kits, CD player or LPG conversion.

What is tax book value?

Tax book value is a new option available from 1 April 2006 and is based on the vehicles value including depreciation i.e. the value recorded in your financial accounts.

Initially the FBT rate of 36% (or 9% quarterly) will cost an employer more, however it will benefit employers who intend to retain their motor vehicles longer than five years, given the value will decline each year.

If this option is chosen it will apply to all vehicles owned, leased by the employer and for a minimum period of two years. Vehicles will have a minimum value of $8,333 regardless of the book value in the financial accounts to reflect the ongoing benefit of a employer provided vehicle.

What is "private use"?

For the purposes of FBT, private use includes travel from or to the employee's home, and any other travel that involves a private or domestic element.

I have leased the company car that is available to my employees. Do I have to pay FBT on it?

Leased vehicles have been aligned with vehicles owned by the employer and therefore FBT is calculated using the cost price or tax book value.

Leases (predominantly used by shareholder-employees) which are either "nine to five" or "flip flop", that is leased to the business for the hours of 9am to 5pm with suspension occurring after 5pm are now treated as available for private use and an FBT liability arises. If the vehicle is not available for private use and is not taken home by the shareholder employee or employee then no liability for FBT would be incurred.

Are petrol expenses paid by an employee where the work car is used for private use considered an employee contribution?

An employee has the use of a vehicle but is required to meet the cost of the petrol for all personal usage. In these circumstances the value of the petrol is considered to be an employee contribution. The cost of the petrol may be deducted when calculating the value of the benefit.

How do I work out the taxable value of pooled motor vehicles?

Take the value of the vehicle with the highest value within the pool. The way you calculate the FBT payable for the pool then depends on the payment option you have elected.

How are emergency calls treated with my motor vehicle costs?

You can claim a daily exemption from FBT where an employee uses a vehicle on an emergency call to provide services that :

• are essential for maintaining plant or machinery, or
• relate to the health or safety of a person.

To qualify, the call must be attended between 6pm and 6am on any weekday, or at any time on a Saturday, Sunday or statutory holiday (unless it concerns a person's health or safety, when no time restriction applies).

What days qualify for out-of-town travel under motor vehicle daily exemptions?

Where an employee is required to be away from home for a continuous period of at least 24 hours, you can also claim a daily exemption for the day they leave and the day they return.

What rate of FBT do I use when major shareholder-employees use a pool of vehicles?

If a major shareholder-employee or an associate is one of the recipients in the pool then the FBT rate is 55.04%. You may need to create two categories for the purposes of calculating FBT in this situation:

• one category for benefits for which a major shareholder-employee or an associate is not one of the recipients - here the FBT rate of 45.99% applies
• another category of benefits for which a major shareholder-employee or an associate is one of the recipients - here the FBT rate of 55.04% applies.

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FBT on goods and services

Do I have to pay FBT on clothing I supply to my employees?

No, provided the clothing is distinctive work clothing, that is, it forms part of a uniform that is identifiable with the employer because of logos or the pattern, colour scheme or style.

Is the car parking that I provide for my employees subject to FBT?

Yes, if you pay for this car parking. However, if you provide car parking on your own or permanently leased premises, you are not liable for fringe benefit tax.

Do I need to pay FBT on an employee's personal usage of an employer's computer?

Personal use of an employer owned or leased business tool will be exempt from FBT providing the tools are primarily a business tool and the cost of the tool does not exceed $5,000.

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FBT on entertainment

Is there FBT on employee entertainment, meals or gifts?

Yes, any entertainment benefits employees consume or enjoy when they choose, and outside their employment duties, is subject to FBT.

I provide my staff with food and beverages after work every Friday. Is this expense liable for FBT?

If employees can only enjoy this form of entertainment at a set time, the cost is not subject to FBT. However, the tax rules for entertainment expenses apply.

I have a group of companies and we have social gatherings at the various branches to enhance working relationships. Do we still qualify for the on premises exemption?

Amendments in legislation now extend the "on premises" exemption to the premises of other companies in the same group providing there is a 66% or greater common ownership with the employer company.

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GST, income tax and FBT

Does the taxable value of fringe benefits include GST?

Usually, the taxable value of a fringe benefit includes GST, unless the fringe benefits are GST-exempt (for example, low-interest loans, overseas travel and life insurance).

Can I make an income tax deduction for FBT?

Yes, an income tax deduction is available.