2024 FBT rates remain high, and worth minimising
2024 FBT rates (Fringe Benefit Tax) remain unchanged from the previous year. However, if you’re an employer in New Zealand, you are likely aware that the FBT rates increased significantly in the 2023 tax year. The changes, effective from 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%. As a result, most taxpayers using the single rate method saw a 30% increase in FBT liability.
Steps to minimise the impact
Fortunately, there are steps you can take to minimise the impact of these changes on your business. One effective strategy is to perform an FBT attribution calculation in the final FBT quarter (1 January to 31 March each year). This method ensures that benefits provided over the year are taxed at each employee’s marginal tax rate according to their income level.
Attribution is critical
Employers who use the attribution method can significantly reduce FBT costs, especially if they have a large number of employees earning below the top tax rate threshold of $180,000 per year. Here’s an illustrative example:
| EMPLOYEE | BENEFIT | PAY | BENEFIT VALUE | 2021 SINGLE RATE | 2024 SINGLE RATE | 2024 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 demonstrated, the FBT liability is significantly lower under attribution compared to the single rate for each employee. Employers need to have accurate data to perform their attribution calculation in the final quarter. This includes detailed information about which employees received which benefits and the corresponding values.
Cash Flow Benefits
There are substantial cash flow benefits in having the confidence to lock in the alternate rate for the first three quarters of the FBT year. Employers unsure of how to perform their FBT attribution calculation can consult their tax adviser or use FBT calculation software like Taxlab to simplify the process.
Summary
In summary, the 2024 FBT rates could result in an overpayment of up to 30% if you are using the single rate method. Using the attribution method can help you minimise these costs effectively.
For more information and assistance with FBT calculations, consider using Taxlab’s FBT calculation software to ensure you are optimizing your FBT payments efficiently.