2023 FBT Rates are high, and worth minimising
2023 FBT rates (Fringe Benefit Tax) are unchanged from the prior year. However, if you’re an employer in New Zealand, you are likely to already know that the FBT rates increased significantly in the prior tax year. The changes, which came into effect on 1 April 2021, meant that the single rate moved from 49.25% to 63.93%, the alternate rate increased from 43% to 49.25%, and the pooling rate moved from 42.86% to 49.25%. The result was a 30% increase in FBT liability for most taxpayers who continue to use the single rate to calculate their FBT.
The good news is that there are steps you can take to minimise the impact of these changes on your business. One option is to perform an FBT attribution calculation in the final FBT quarter (1 January to 31 March each year). This means benefits provided over the course of the year are taxed at each employee’s marginal tax rates per their income level.
Attribution is now critical
Employers who use the attribution method can keep FBT costs to a minimum, especially where there are a large number of employees earning under the top tax rate threshold of $180,000 p.a. To illustrate this point, let’s look at an example:
| Employee | Benefit | Pay | Benefit value | 2021 Single rate | 2023 Single Rate | 2023 Attribution |
|---|---|---|---|---|---|---|
| John | Motor vehicle | $150,000 | $8,000 | $3,940 | $5,114 | $3,940 |
| Jane | Insurance | $100,000 | $3,000 | $1,478 | $1,918 | $1,478 |
| Jimmy | Gift | $60,000 | $400 | $197 | $256 | $171 |
| Total | $5,615 | $7,288 | $5,589 |
As you can see, the FBT liability is significantly lower under attribution than under the single rate for each employee. It’s important to note that employers need to have the right data available to perform their attribution calculation in the final quarter. This includes knowing which employees have received which benefits and the corresponding value.
There are significant cash flow benefits in having the confidence to lock in the alternate rate for the first 3 quarters of the FBT year. Employers who are unsure of how to perform their FBT attribution calculation can contact their tax adviser or use FBT calculation software like Taxlab to simplify the process.
Summary
In summary, the 2023 FBT rates may result in an overpayment of up to 30% in FBT if you are using the single rate method. By performing an FBT attribution calculation, employers can keep FBT cost increases to a minimum. Employers should start looking into this now. With the help of FBT calculation software or a tax adviser, employers can simplify the FBT attribution calculation and save tax costs.