Rethink Of Tax On Work Perks

Tuesday, 1 April 2025, 8:09 pm
Article: RNZ

Susan Edmunds, Money Correspondent

A rethink of fringe benefit tax (FBT) should help dispel urban myths such as "you don't need to pay tax on a ute", one tax expert says.

FBT was introduced 40 years ago to ensure that remuneration was taxed whether it was received in the form of cash or other benefits.

But over time it has become more complex, and as ways of working have changed, the rules have become more difficult for some employers to comply with.

A review in 2022 found it did not function well.

Inland Revenue has now issued a consultation document on options for change.

Robyn Walker, tax partner at Deloitte, said a lot of people felt the rules as they stood were unfair and too onerous, and there were lots of compliance costs without a lot of tax being generated.

Walker said the review targeted some key areas of concern.

A significant one was the treatment of motor vehicles. The proposals include removing the definition of a "work-related vehicle" which currently cannot be a car and has to be sign-written.

Walker said there had long been concerns about how FBT was being applied.

She said 40 years ago, people had generally been happy that a ute carrying tools and going to a work site was a work vehicle and should be exempt.

But over time, utes had got bigger and more like cars. To be counted as exempt, they had to only be used for work travel. But that was not well adhered to and people were using "work-related vehicles" for other purposes.

"That's where you get all these stories of people saying you know all these sign-written utes down at the boat ramp at the weekend or at the mountain bike parks and so on."

She said IRD was concerned that once a taxpayer thought they could get away with not complying with one area of tax - such as FBT - they might slip on other things, too.

Walker said the restriction that a car could not be a work-related vehicle had also meant that more fuel-efficient vehicles were shut out of the FBT exemption. "The fact that electric vehicles can now potentially also benefit from a 0 percent FBT rate, or a lower taxable value calculation if they are subject to FBT, is a positive move for more sustainable vehicle fleets."

The proposal suggests there could be three categories of vehicles.

A vehicle that is purely a perk that can be used however a person likes would be subject to 100 percent FBT.

A vehicle that was used purely for work travel would be completely exempt. "That's not for an office worker, that's for someone who is travelling to different work sites," Walker said.

Something that was in between, maybe allowing for home-to-work travel and some incidental travel, would have a rate of 35 percent of the taxable value. "You're only allowed home to work travel but if you need to use it once a year on a hunting trip, that's one of the examples, if you take it away once, that's not going to tip you out.... that's more for the worker who's going to the same place every day.

"Under the 'close enough is good enough' approach, true incidental use of a vehicle would be disregarded."

The proposals also include unclassified benefits. Walker said when the tax was first introduced there were lots of non-cash benefits being given to employees instead of cash.

"Fast-forward 40 years and wide-spread benefits are less of a feature of employment agreements. Instead, unclassified benefits are more likely to be ad-hoc, small value items which have no real remuneration value - for example flowers on a bereavement, a gift on the birth of a child or a wedding, Christmas gifts ... These items can be difficult and time consuming to identify and attribute to individual employees."

She said many businesses were unhappy that these sorts of things were subject to FBT because they were not a substitute for remuneration.

"Obviously if you're giving someone a car as part of their package that's part of their remuneration but nobody's agreeing to take a job or to be paid in their Christmas ham that they get. There's a question mark of if I'm sent flowers because my nan has died should there be tax on that."

The review suggests a remuneration test with a cap per benefit or a list of non-remuneration benefits.

The test would exempt benefits worth less than $200 provided they were not a substitute for salary.

"Under this approach, things like flowers, low value Christmas gifts, occasional recognition for performance, casual sports club fees and employer branded merchandise would likely be exempted, whereas gifts costing over $200, gym memberships, and non-work related travel benefits would remain subject to FBT. The intended outcome from this test is that ad hoc small benefits can be ignored, providing a material saving in compliance costs."

Under the list approach, there would be exempt items such as flowers or prizes, or token gifts.

IRD was also proposing bringing entertainment rules into the FBT regime.

"This would be taxed at a flat rate of 49.25 percent, like a pooled benefit, and would apply to entertainment provided to both employees and non-employees. "

That would exclude entertainment costs less than $200 and things like coffee and working lunches.

Submissions on the consultation close in early May.

© Scoop Media

RNZ

New Zealand's public broadcaster, providing comprehensive NZ news and current affairs, specialist audio features and documentaries.

Radio New Zealand is a Crown entity established under the Radio New Zealand Act 1995. Radio New Zealand News are vital elements in our programming, providing impartial news and information to New Zealanders every day. Radio New Zealand (RNZ) provides listeners with exciting and independent radio programmes in accordance with the Radio New Zealand Charter.

Contact RNZ

• Website - www.radionz.co.nz
• Twitter - @rnz_news
• Facebook
• Link - Contact RNZ