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.

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

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.

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

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

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.

Can a double cab ute qualify for the work related vehicle exemption from FBT. We were asked this question recently at a TaxLab FBT training course.

The answer is yes, it can qualify. However, just because the vehicle is a double cab ute doesn’t mean you automatically get the exemption.

Work related vehicle FBT exemption

A work related vehicle creates a fringe benefit on any day that it is available for private use (the same as when other vehicles are available for private use). However, travel between home and a business premises (and incidental use) is legislatively excluded from being private use, provided that

• the travel is in a work related vehicle; and
• the travel is necessary and is a condition of their employment.

What’s a work related vehicle

Four tests must all be met for a vehicle to be a work related vehicle

1. The vehicle must not be a car (Inland Revenue’s view is that to meet this test “the principal design of the vehicle cannot be for carrying passengers”); and
2. The exterior of the vehicle must permanently and prominently display the name of the employer, or the business logo, acronym or other identification; and
3. The employer, must have notified the employee in writing that the vehicle is available only for travel between home and work (or travel incidental to business travel); and
4. The employer conducts and records checks to ensure that employees are actually following this restriction in real life.

Common errors

The exemption is very narrow. Most overlooked is that the exemption only covers exclusive driving between home and a business premises. If the employee uses a work related vehicle even once for private use (e.g. driving from home to the supermarket and back again) then the Inland Revenue will consider that the vehicle is always available for private use.

Also commonly overlooked is that the travel must be necessary and a condition of employment (a written condition in the opinion of Inland Revenue).

Partial exemption for weekend use

Inland Revenue does allow a partial exemption, essentially allowing employees to use a work related vehicle on weekends and public holidays only. The work related vehicle

• must not be available for private use for most of the week; and
• can only be available for private use on certain days (for example, weekends and statutory holidays). These days would attract FBT.

Annual FBT returns (IR 422) – Small business option

Annual FBT returns (IR422) can be filed instead of quarterly FBT returns, if you meet one of the following criteria, and you make an election before the due date:

• Gross tax and ESCT for the previous year is $500,000 or less; or
• You were not an employer in the previous year.

If you make an election, you must send it to Inland Revenue by the due date. If they do not receive it by the due date, then you will need to file quarterly returns for the year. Refer to the Income Tax Act 2007, RD 61 Small business option for more details.

Income year FBT returns (IR421) – Close company option

Income year FBT returns are different to annual FBT returns. It is based on a non-standard balance date. You can elect to use the Fringe benefit shareholder/employee tax income year tax return (IR421) if:

• your company has shareholder-employees only, and your annual gross tax and ESCT are less than $500,000, or
• you are a closely held company and you only provide motor vehicles for private use to shareholder-employees and that benefit is limited to 2 vehicles.

This return covers the accounting year of your company. You should file it by the due date for paying end-of-year income tax. Refer to the Income Tax Act 2007, RD 60 Small business option for more details.

Use FBT Software to file annual FBT returns

You should consider using FBT software to prepare returns, including annual FBT returns and income year FBT returns. It is the fastest, most efficient way of completing even small returns and is accurate and fully documents the attribution calculations. Contact us today to find out more.

FBT returns can be time consuming and stressful. However, by utilising the legislation to its fullest you can minimise your FBT cash liability every quarter. Using some basic FBT rules to your advantage and approaching FBT compliance in a different way will benefit you. There are large savings to be made. Here are 5 ways you can pay less.

Alternate rate option

Reduce FBT by using the alternate rate option. Many employers avoid it due to its complexity. Yes, its complicated but in our experience the cash savings of attributing fringe benefits to employees is generally worth it.

De-minimis exemption

Actively structure unclassified benefits within the $300 per quarter de-minimus exemption to reduce FBT. This is often an afterthought, use it to your advantage.

Optimise pooling

Optimise pooling to reduce FBT by selecting the most efficient FBT option for each category (you can pay FBT using attribution or the pooling rate). In general, use the pooling rate where the majority of benefits in a category are provided to highly paid employees, attribute when not.

Speak to a FBT specialist about your FBT returns

FBT specialists can reduce your fringe benefit profile. Yes we know they are expensive but they know what they are doing and understand the legislation, which goes much deeper than the FBT guide. The fringe benefit rules are complicated and opportunities are often overlooked by businesses because the detail of return compliance often gets in the way of smart thinking. We recently set up a client in our software and discovered they had been overpaying thousands of dollars of FBT every quarter for the last 8 years. A simple conversation with their tax advisor would picked up the issue.

Reduce compliance costs

Spend less time preparing calculations and returns to reduce compliance costs. OK, not strictly a tax saving but a compliance cost saving but its a cost all the same. We have helped people reduce time spent from days to hours by introducing purpose built FBT software, robust process and efficient sense checking.