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:
2021 Single rate
2023 Single Rate
Example comparing 2021 single rate with the increase to 2023 single rate, and how attribution can reduce FBT costs
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.
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.
If you are a New Zealand employer, you are probably aware of Fringe Benefit Tax (“FBT“). FBT is a tax on non-cash benefits that employees receive as part of their employment, such as company cars, health insurance, and gym memberships etc. While FBT is an important part of your ongoing tax compliance obligations, it can be challenging to get it right. In this blog post, we discuss a common FBT return process misstep and how you can avoid it.
Identify fringe benefits every quarter
Fringe benefit identification is one of the most common FBT return errors. These errors occur when businesses fail to identify all the fringe benefits provided to their employees. This is often a result of an incomplete FBT return process. Many businesses rely on the previous quarter’s FBT return to determine what data to gather for the current quarter. However, this alone is not enough for a robust process as the benefits provided are likely to change from quarter to quarter.
The missing step in the FBT return process is finding out what benefits were provided in the current quarter that were not provided previously. This step can be as simple as talking to people who are likely to provide or authorise fringe benefits, such as management, sales, and HR staff.
Document your efforts every quarter
It is important to do this as part of your return process every quarter and document your efforts. Consistently documenting your efforts and putting them on your FBT return file is critical. Email conversations with relevant staff members are sufficient evidence that demonstrates that you have a robust process you have a are making every effort to comply with FBT legislation. This documentation will form a key part of evidence on your next Inland Revenue audit.
By taking these simple steps, you can reduce the risk of filing incorrect FBT returns. FBT returns can be complicated, and it’s easy to make mistakes. However, if you put in the effort to identify all the fringe benefits provided and document your process, you can significantly reduce the risk of errors. Remember that Inland Revenue considers how robust your process is when looking at any errors you have made.
FBT returns are complicated, and it’s not surprising that many businesses make mistakes. However, by taking the time to identify all the fringe benefits provided and documenting your processes you are likely to save time and money in the long run as it is much more likely that you are complying with FBT legislation.
These terms and conditions apply to the Taxlab Demo Promotion (Promotion) conducted by Taxlab Limited, 3C Rothwell Avenue, Rosedale, Auckland, 0632, New Zealand (Taxlab).
The Promotion begins on 4 April 2022 and ends 20 May 2022 (Promotion Period).
To be eligible for the Promotion you must be a NZ resident, be at least 18 years old, enter during the Promotion Period, be authorised to enter the Promotion on behalf of your organisation and any person whose details you provide; and not be an employee or contractor of Taxlab or its related entities.
To enter this Promotion, you must sign up to the Promotion web page accessed via the Promotion email during the Promotion Period.
Valid entries are eligible to go into a weekly prize draw to win one of multiple prizes (Prizes).
Taxlab will randomly select prize winners weekly (Winners). Winners will be notified by email and must provide a delivery address within five working days to receive Prizes. By accepting any Prizes from Taxlab, you consent to Taxlab using your name and photos for promotional purposes unless you tell us otherwise in writing.
Prizes are not negotiable, transferrable, or exchangeable, and cannot be taken as cash.
Taxlab’ decisions on all matters regarding the Promotion are final and no correspondence will be entered into.
Taxlab reserves the right, acting reasonably, to extend, change, or terminate all or part of the Promotion at any time without notice.
To the extent permitted by law, Taxlab excludes any liability it may have to you arising directly or indirectly out of or in connection with this Promotion.
You are deemed to accept these terms and conditions at the time of entering into the Promotion.
We are excited to announce the launch of a tax technology partnership in New Zealand. Today marks the first day of an exclusive new partnership between Taxlab and Tax Traders, a leading tax pooling intermediary and one of NZ’s fastest growing fintech companies.
Our mission has always been about enabling technology to take the pain, risk and cost out of tax administration. This partnership will help further our mission and revolutionise the way New Zealanders pay income tax, both now and into the future.
This offering provides companies with an enhanced suite of tools that provide automatic access to consolidated tax information so they can make smarter and more efficient decisions and do this in a fraction of the time! More companies will now be able to pay their income tax in the way that suits them best and reflects their unique business model.
Scholarship and Support
Marking this significant moment, we are also launching a new $30,000 tax technology scholarship, Cultivate.
The scholarship program will identify and grow untapped potential in the field of technology, creating opportunities for students who may otherwise face significant barriers to pursuing a future in the industry.
And This Is Just the Beginning
We have been working together on various projects over the last couple of years. This partnership is a key step towards our vision and reflects the growing desire of both parties to collaborate.
Our approach to collaborating and integrating with other innovative technology solutions like Xero and Tax Traders means we can continue to help create a highly efficient process between taxpayers, tax agents and tax authorities.
This training is exclusively for BDO New Zealand and is available to all staff members across all offices.
We will be hosting a webinar to share how to use our FBT software for a wide range of clients, from small companies with a few motor vehicles to larger enterprises with hundreds of employees. Training will include:
Collecting and uploading benefits and employee data
The FBT rate changes came into effect on 1 April 2021:
The single rate has moved from 49.25% to 63.93%;
The alternate rate has increased from 43% to 49.25%;
The pooling rate moved from 42.86% to 49.25%.
The Impact Is a 30% Increase in FBT
Inland Revenue has advised that around 90% of taxpayers currently use the single rate to calculate their FBT. If those same taxpayers continue to use the single rate for 2021/2022 tax year, they will see a significant 30% increase in their FBT liability.
How to Minimise the Increase
Employers can 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.
It will be more important for taxpayers to use attribution for the 2021-22 FBT year in order to keep FBT cost increases to a minimum. This is especially the case where there are a large number of employees earning under the top tax rate threshold of $180,000 p.a.
Please check out the table below for a simple illustration of how the tax liability differs between single rate and attribution in 2021 and in 2022.
2021 Single Rate
2022 Single Rate
When Should I Start Looking Into This?
Now. In order to be able to perform your attribution calculation in the final quarter of 2021/2022, you need to ensure you have the right data available. This includes knowing which employees have received which benefits and the corresponding value. Further, 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.
How to Simplify the FBT Attribution Calculation
Contact us! FBT calculation software like Taxlab is available to make FBT compliance much easier and more robust while helping you save tax costs. We would be happy to organise a demo for you. Otherwise, you can also get in touch with your tax adviser to evaluate your options based on your requirements and resources.
Taxlab are pleased to have Josie Goddard of PwC to talk us through the technical FBT changes and help you understand the different options for calculating FBT payable. Josie will use a case study to show the impact of the higher 63.93% FBT rate.
To close, we will showcase how FBT software provide a real opportunity for employers and advisers to save tax, better manage cashflow and efficiently complete the FBT return with automated de minimis, attribution and pooling optimisation as well as sense checks, reports and analytics.
Josie is a Senior Manager in PwC’s employment tax practice and brings 8 years of experience in advising large employers. She has led many payroll reviews focusing on employment taxes and has managed a number of Inland Revenue reviews and audits. Josie leads PwC’s policy submissions in relation to employment tax and was PwC’s lead specialist in relation to the recent payday reporting changes.
Jeremy Dobbie, Taxlab
Jeremy has over 10 years of experience working at PwC NZ, Thomson Reuters and EY UK, and exclusively with tax & accounting technology since 2013. He joined Taxlab in 2019 to help ensure the compliance needs of accountants and tax professionals are understood and connected with the relevant solution.
We activated our Business Continuity Plan as a precautionary measure on 16 March 2020 and tested closure of our Auckland office and London working hub. We have not experienced any issues in service uptime or support availability to date. To help you understand and gain assurance of our business continuity, please see further information below:
We provide software-as-a-service and continue our product development and delivery of service through the use of cloud applications.
We have confirmed with external service providers to ensure they too, can continue to deliver to us.
We have full-time remote workers, and as such we are highly practised using remote collaboration and communication tools to ensure business as usual.
We do not expect any technology bottlenecks should we need all our staff to work remotely.
Our team will continue to be contactable via our Support Helpdesk, either via phone (0800 00 1035) or email (email@example.com) and we continue to be committed to delivering high quality customer service.
We thank you in advance for your understanding and patience and note that we will endeavour to respond to queries as soon as possible.
We do not anticipate any significant changes to our business continuity plan or COVID-19 policies but as we navigate this dynamic landscape, any updates are likely to be made on this webpage.
Safety of our people
We have implemented COVID-19 policies across our staff in NZ, Australia and UK. This includes:
Halting travel (domestic or international)
Declining face to face business meetings or events in favor of virtual meetings where possible
Reinforcing good hygiene habits
Our Auckland office and London working hub are open to staff and office support services under Government guidelines for safe working, but is not open to clients or suppliers without executive approval.
Encouraging all staff to take appropriate precautions in line with government recommendations as we continue to put the safety of each other first.
While we serve the needs of our customers, we will continue to work both at our offices and remotely at home in line with government mandates and advice.
Our team remains committed to your success. We are well placed to continue business as usual and maintain the software service and support you expect from us.
We wish you, your family and your colleagues, good health and diligent hygiene as we look to overcome uncertain times.
We are often asked why we default tax pooling transactions to the Other disclosure boxes on the IR4J imputation return. The answer is simple, this is where Inland Revenue specify you put them. We have directly confirmed this with them:
“Deposits and transfers into a tax pooling account that create an imputation account credit should be recorded in keypoint 41E, while refunds and transfers out of a tax pooling account that create an imputation account debit should be recorded in keypoint 42D.”
Inland Revenue, 21 August 2015
Why do Inland Revenue want it this way rather than including pooling in the tax payments disclosure box… who knows. We suspect they would prefer to have a separate box for tax pooling on the IR4J but this isn’t an option in the current system.