Category Archives: FBT

Tax software legal terms

FBT returns – Identification and documentation is key to your process

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.

In conclusion

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.

BDO New Zealand – Taxlab FBT training

Monday 16 May 2022, 1pm-2pm

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
  • Automatic Q4 attribution calculation
  • True up calculation and final tax return
  • Review and sense checks
  • Generate cost centre reports
  • Generate client reports and deliverables

Please register below:

[bestwebsoft_contact_form id=4]

2022 Fringe Benefit Tax (FBT) Rates

2022 FBT Rates are Skyrocketing

New FBT Rates

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.

Example:

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.

EmployeeBenefitPayBenefit
Value		2021
Single Rate		2022
Single Rate		2022
Attribution
JohnMotor vehicle$150,000$8,000$3,940$5,114$3,940
JaneInsurance$100,000$3,000$1,478$1,918$1,478
JimmyGift$60,000$400$197$256$171
Totals$5,615$7,288$5,589

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.

FBT Resources

Online

Webinars

The death of Microsoft Silverlight

Microsoft Silverlight is an application framework for running internet applications (similar to Adobe Flash).

We have used Silverlight to run our FBT software since 2009.

Silverlight is nearing the end of it’s useful life and you may already be experiencing issues with it. Google Chrome blocked Silverlight in September 2015 and Firefox did the same in March 2017. It is not supported in Microsoft Edge and Microsoft will end all support by October 2021.

FBT Rates

FBT rates are a major risk area for Excel FBT calculators

It is always worth checking FBT rates in your excel spreadsheets as the rates do change over time and there were significant changes in the 2011 and 2012 FBT years. FBT rates 2012 (for the year ended 31 March 2012) are different to FBT rates 2011. FBT rates 2011 were blended because it was a transitional year (due to the 1 October 2012 changes to income tax rates). Its now business as usual with FBT rates 2012 based on actual marginal income tax rates rather than blended ones.

Quarterly FBT rates

These are the FBT rates you apply each quarter depending on which FBT method you are electing to use. If you are attributing fringe benefits to employees in Quarter 4 to lower your overall FBT rate, you have the option of paying at 43% or 49.25% in the first three quarters as an estimation of your final effective FBT rate under attribution. If you pay any of the first three quarters at 43% then you must attribute benefits in Quarter 4. If you pay all of the first three quarters at 49.25% then you can forgo the attribution calculation in Quarter 4 and simply pay the whole year at 49.25% (which can be very expensive).

2015 quarterly FBT rates

Quarter Single rate option Alternate rate option
Quarter 1 49.25% 43% or 49.25%
Quarter 2 49.25% 43% or 49.25%
Quarter 3 49.25% 43% or 49.25%
Quarter 4 49.25% Attribution

2014 quarterly FBT rates

Quarter Single rate option Alternate rate option
Quarter 1 49.25% 43% or 49.25%
Quarter 2 49.25% 43% or 49.25%
Quarter 3 49.25% 43% or 49.25%
Quarter 4 49.25% Attribution

2013 quarterly FBT rates

Quarter Single rate option Alternate rate option
Quarter 1 49.25% 43% or 49.25%
Quarter 2 49.25% 43% or 49.25%
Quarter 3 49.25% 43% or 49.25%
Quarter 4 49.25% Attribution

2012 quarterly FBT rates

QUARTER Single rate option Alternate rate option
Quarter 1 49.25% 43% or 49.25%
Quarter 2 49.25% 43% or 49.25%
Quarter 3 49.25% 43% or 49.25%
Quarter 4 49.25% Attribution

2011 quarterly FBT rates

QUARTER Single rate option Alternate rate option
Quarter 1 61% 49% or 61%
Quarter 2 61% 49% or 61%
Quarter 3* 49.25% 43% or 49.00%
Quarter 4 49.25% Attribution
*Note that there is a difference of 0.25% between the single rate and highest alternate rate.

2010 quarterly FBT rates

QUARTER Single rate option Alternate rate option
Quarter 1 61% 49% or 61%
Quarter 2 61% 49% or 61%
Quarter 3 61% 49% or 61%
Quarter 4 61% Alternate rate

Marginal income tax on cash pay rates

FBT rates for the tax on cash pay calculation when attributing fringe benefits to an employee under the alternate rate option in quarter four are as follows. These are the same marginal tax rates that are used for income tax purposes.

2015 tax on cash pay rates

2015 Cash pay band 2015 marginal income tax rates
$0 to $14,000 10.50%
$14,001 to $48,000 17.50%
$48,001 to $70,000 30.00%
$70,001 and above 33.00%

2014 tax on cash pay rates

2014 CASH PAY BAND 2014 marginal income tax rates
$0 to $14,000 10.50%
$14,001 to $48,000 17.50%
$48,001 to $70,000 30.00%
$70,001 and above 33.00%

2013 tax on cash pay rates

2013 CASH PAY BAND 2013 marginal income tax rates
$0 to $14,000 10.50%
$14,001 to $48,000 17.50%
$48,001 to $70,000 30.00%
$70,001 and above 33.00%

2012 tax on cash pay rates

2012 CASH PAY BAND 2012 marginal income tax rates
$0 to $14,000 10.50%
$14,001 to $48,000 17.50%
$48,001 to $70,000 30.00%
$70,001 and above 33.00%

 2011 tax on cash pay rates

2011 CASH PAY BAND 2011 Marginal income tax rates
$0 to $14,000 11.50%
$14,001 to $48,000 19.25%
$48,001 to $70,000 31.50%
$70,001 and above 35.50%

 2010 tax on cash pay rates

2010 CASH PAY BAND 2010 Marginal income tax rates
$0 to $14,000 12.50%
$14,001 to $48,000 21.00%
$48,001 to $70,000 33.00%
$70,001 and above 38.00%

Marginal income tax on all-inclusive pay rates

FBT rates for the tax on all-inclusive pay calculation when attributing fringe benefits to an employee under the alternate rate option in quarter four are as follows. These rates are the marginal income tax rates grossed up as the value of fringe benefits is always net of tax (rather than cash payments which are a gross value). The FBT rates are not an exact gross-up as rounding has been applied in the legislation.

2015 tax on all-inclusive pay rates

All inclusive pay banding 2014 marginal FBT rates
$0 to $12,530 11.73%
$12,531 to $40,580 21.21%
$40,581 to $55,980 42.86%
$55,981 and above 49.25%

2014 tax on all-inclusive pay rates

All inclusive pay banding 2014 marginal FBT rates
$0 to $12,530 11.73%
$12,531 to $40,580 21.21%
$40,581 to $55,980 42.86%
$55,981 and above 49.25%

2013 Tax on all-inclusive pay rates

All inclusive pay banding 2013 marginal FBT rates
$0 to $12,530 11.73%
$12,531 to $40,580 21.21%
$40,581 to $55,980 42.86%
$55,981 and above 49.25%

2012 Tax on all-inclusive pay rates

All inclusive pay banding 2012 marginal FBT rates
$0 to $12,530 11.73%
$12,531 to $40,580 21.21%
$40,581 to $55,980 42.86%
$55,981 and above 49.25%

2011 Tax on all-inclusive pay rates

All inclusive pay 2011 Marginal FBT rates
$0 to $12,390 12.99%
$12,391 to $39,845 23.84%
$39,846 to $54,915 45.99%
$54,916 and above 55.04%

Note that FBT rates and banding thresholds have changed.

2010 Tax on all-inclusive pay rates

All-inclusive pay 2010 Tax on all-inclusive pay rates
$0 to $12,250 14.29%
$12,251 to $39,110 26.58%
$39,111 to $53,850 49.25%
$53,851 and above 61.29%

FBT pooling rates

FBT rates for pooled benefits are applied as follows. You always have the option of paying FBT at the highest rate on a benefit if you choose to do so but using the legislated employee pool rate for benefits that can be pooled can result in significant FBT savings.

2015 FBT pooling rates

Pool 2014 FBT POOLING RATES
Shareholders 49.25%
Employees 42.86%

2014 FBT pooling rates

Pool 2014 FBT POOLING RATES
Shareholders 49.25%
Employees 42.86%

2013 FBT pooling rates

Pool 2013 FBT POOLING RATES
Shareholders 49.25%
Employees 42.86%

2012 FBT pooling rates

Pool 2012 FBT POOLING RATES
Shareholders 49.25%
Employees 42.86%

2011 FBT pooling rates

Pool 2011 FBT pooling rates
Shareholder 55.04%
Employee 45.99%

2010 FBT pooling rates

Pool 2010 FBT POOLING RATES
Shareholder 61%
Employee 49%

Why your organisation should consider using FBT Software

We strongly recommend you consider our purpose built FBT Software to reduce risk and turnaround times. For 2012 FBT you will once again have to change your FBT calculations. The rate changes from 2010 to 2012 will have destroyed many excel FBT calculators. We strongly recommend you consider our purpose built FBT Software to reduce risk and turnaround times. Please contact us today.FBT rate changes effect the FBT year ended 31 March 2011. Due to the mid year lowering of individual income tax rates (1 October 2010), the 2011 marginal income tax and FBT rates are blended.

The 2010 budget implemented tax rate changes to income tax, GST and FBT rates. It also increased the complexity of FBT calculations and will have destroyed many excel FBT calculators. We strongly recommend you consider our purpose built FBT Software to reduce risk and turnaround times.

How to correct FBT returns

Correcting errors in a filed FBT return is not as simple as washing them through the fourth quarter attribution calculations. The fourth quarter FBT return true-up is just a true-up between FBT rates. Errors in the taxable value of benefits in earlier quarters is not technically part of this process. While these errors can be flushed through the true-up process at a practical level, you may actually just be hiding error corrections that are subject to specific rules in the tax legislation.

FBT return corrections under Section 113A

Under section 113A of the Tax Administration Act 1994, errors can be corrected in the next FBT return after the discovery of the error when:

  • you have filed an FBT return that contains errors; and
  • the errors were a “clear mistake, simple oversight, or mistaken understanding on your part”; and
  • the total discrepancy in the amount assessed in aggregate is $500 or less.

This only be done in the next FBT return after you discover the error. If you find an error relating to the first quarter FBT return while preparing your second quarter FBT return, you can’t wait until the fourth quarter washup to correct it under Section 113A. If you make a Section 113A correction, Inland Revenue require you to document the details including:

  • the return period the error occurred in
  • the FBT amount involved
  • the type of error
  • the FBT return period the correction was made.

We suggest you review Inland Revenue’s Standard Practice Statement 07/03 – Requests to amend assessments (May 07) if you intend using Section 113.

FBT return corrections above the $500 threshold

Technically you will need to file a notice of proposed adjustment. Use of money interest and penalties may be applicable.

We recommend you deal with errors quickly. However, always speak to your tax adviser before contacting Inland Revenue as they will be able to give you practical guidance that will reduce exposures.

What happens when you are using FBT software

FBT software results in fewer errors. It is often implemented as part of wider FBT process improvement that involves better identification of fringe benefits each quarter, which is an area of high risk. FBT software has sense checks to prevent common errors before you file. However, FBT software also makes it easier to pick up prior period errors in Quarter 4 and to true them up as part of the attribution process. Contact us today to find out more about how FBT software can help you reduce FBT errors.

FBT on car parks provided by employers

We already have FBT on car parks

A lot has been said about the proposed ‘carpark tax’ in recent weeks. I hesitate to comment too formally on the matter because its complex. However, one thing seems to be overlooked in the press coverage so far: There is already FBT on car parks under the current rules. A lot of media reports have been promoting this as a new tax, when in fact its not.

Overview of how it works

Providing a non-cash benefit to an employee is subject to FBT by default. It may then be exempted or valued to zero. Providing a carpark to an employee is an unclassified benefit, meaning it is caught under the catch all rather than specifically. However, there is an exclusion for benefits that are provided on-premises. This includes car parks as long as they are on a business premises.

When is a car park on-premises?

This is where it gets a little weird. If you lease a property, or even just a single car park and have an exclusive right to it, then that is a business premises and the exemption applies. However, if you don’t have an exclusive right to it because you license the right to use one park from many (i.e. a park on a floor shared with other people) then this is not your premises and you have to pay FBT. In summary

  • Leased car parks – Exempt from FBT
  • Licensed car parks – FBT is payable

See IRDs Public Ruling – BR Pub 99/6 for the detail regarding FBT on car parks.

Are the proposed rules fair?

Are the proposal for FBT on all car parks within the Auckland and Wellington CBDs fair? In my opinion, yes and no. FBT on car parks where they are valuable, and clearly part of an employee’s remuneration package seems fair. However, in the real world – there just doesn’t seem to be a practical way to get it right. Making car parks in the Auckland and Wellington CBDs subject to tax is arbitrary and unfair particularly if you are on the wrong side of the road within the boundaries.

Is there a better way? We haven’t come up with one and neither has IRD. Until they have the status quo seems to be the way to go.

Changing your FBT filing date

Changing your FBT filing date

If you or your clients provide fringe benefits to staff or shareholders you must file regular FBT returns. There are set dates when you can change from quarterly filing (the default) to another method.

The three filing options are:

  • quarterly
  • annual
  • income year.

Quarterly returns

Employers are required to file FBT returns quarterly unless they meet the criteria outlined in the Fringe benefit tax guide (IR409) and then elect to file yearly returns.

The return periods and due dates for quarterly returns are outlined here.

Quarter Return period Due date
1 1 April to 30 June 20 July
2 1 July to 30 September 20 October
3 1 October to 31 December 20 January
4 1 January to 31 March 31 May

Annual returns

If you’re a current employer and want to change from quarterly filing, you must make your election by 30 June in the year the election first applies. For example, if you want to file your first annual return for the year ended 31 March 2014, you must make an election by 30 June 2013.

New employers must make their election by the last day of the first quarter after starting to employ. For example, if you started employing on 31 October 2012, you must have made an election by 31 December 2012 to be able to file a first annual return to 31 March 2013.

Income year returns

Existing companies with shareholder-employees can elect to file income year returns by the last day of the first FBT quarter in the income year for which the election applies. For example, a company with a 30 September balance date would have to have elected by 31 December 2012 to file a return for the year ended 30 September 2013.

Companies that are new employers must elect by the last day of the first quarter in which they started employing, within the income year the election applies for. For example, if a company with a 30 June balance date starts employing on 31 July 2013, it must make an election by 30 September 2013.

Section RD 60(2) of the Income Tax Act 2007 sets out the dates by which a close company that meets the requirements of RD 60(1) must make its election if it wants to file its FBT returns on an income year basis.

Section RD 61(2) also sets out the dates by which a small business that meets the requirements of section 61(1) must make its election if it wants to file its FBT returns on an annual basis. Because the dates are set we can’t accept late FBT return elections. Returns received where no election has been made or the election is outside the time allowed will be treated as invalid and your client will be asked to file FBT quarterly returns. This may make them liable for penalties and interest because of different due dates.

You can make your fringe benefit tax election online. This service allows employers to change how often they file FBT returns or elect not to file FBT returns. However, you can’t request to file your FBT returns quarterly using this service, you must call us on 0800 377 772 to do this.

FBT due dates for New Zealand employers

FBT due dates

FBT due dates are the same every tax year regardless of your balance date. Each FBT year is to 31 March and is split into four quarterly FBT returns (FBT return quarters are therefore not calendar year quarters).

You have 20 days to prepare and file FBT returns and pay FBT before the due date in quarters one to three. It is relatively common for people forget that in quarter four you get two months to file and pay your FBT return (force of habit). The longer period is recognition that fourth quarter FBT returns (which involve a true up of FBT rates for the year based on individual tax rates) are complex and time consuming.

Quarterly due dates for returns and payment

Quarter to FBT due dates for returns and payment
Q1 30 June 20 July
Q2 30 September 20 October
Q3 31 December 20 January
Q4 31 March 31 May

If the due date falls on a weekend or public holiday then FBT return filing and payment are due on the next working day. More information regarding return due dates from Inland Revenue.

Don’t leave it until the last minute

Even simple FBT returns for small employers can be complicated and time consuming. You will need time to gather data to value fringe benefits, prepare and review FBT calculations, review and prepare return disclosures. You may also need to seek help from your accountant regarding any changes to the FBT rules or to calculations due to changing income tax or FBT rates.

We recommend you attribute fringe benefits to employees every quarter so that the fourth quarter calculations are more accurate and less time consuming.

The benefits of using FBT software

FBT software enables much faster and more accurate preparation of FBT returns. It helps you stay on top of FBT due dates, which are require a quick turnaround. Contact us today if you would like to find out more.