FBT rates remain high
While the 2023 Fringe Benefit Tax (FBT) rates remain unchanged from last year, New Zealand employers are still facing high liabilities due to substantial rate hikes introduced in previous tax periods.
In April 2021, significant increases saw the single rate jump from 49.25% to 63.93%, the alternate rate climb from 43% to 49.25%, and the pooling rate shift from 42.86% to 49.25%. For employers relying on the single rate method, these changes have translated into an approximate 30% rise in FBT costs.
Why consider FBT attribution?
One effective strategy to mitigate these increased liabilities is the use of FBT attribution calculations.
By applying this method in the final FBT quarter return (to 31 March), you can tax the benefits provided to employees according to their individual marginal tax rates. This approach is especially beneficial for businesses with a large number of employees earning below the top tax threshold of $180,000 per annum.
A closer look with an example
Consider the following illustration comparing the impact of the 2021 single rate, the increased 2023 single rate, and the 2023 attribution method:
| 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 |
This example shows that by using the attribution method instead of the single rate approach, you could save about $1,699 in total—that’s roughly a 23% reduction in your FBT bill.
Practical considerations for employers
To take full advantage of the attribution method, it’s essential to have accurate records of which employees have received which benefits, along with their corresponding values. Doing so not only reduces your tax burden but also offers significant cash flow benefits by enabling you to lock in the lower alternate rate for the first three quarters of the FBT year.
If you’re uncertain about performing these calculations, consider consulting a tax adviser or utilising specialised FBT calculation software, such as Taxlab, to simplify the process
In summary
Although the 2023 FBT rates might appear static compared to the previous year, the lasting impact of the 2021 increases means many employers could end up overpaying by as much as 30% if they continue using the single rate method.
By switching to an FBT attribution calculation, you can more accurately align tax costs with your employees’ marginal rates and significantly reduce your overall liability. Now is the ideal time to review your FBT strategy and seek professional or software-based assistance to safeguard your business’s cash flow.