The personal tax rate threshold changes, in effect since July 31 last year, have a flow-on effect to this year’s annual Fringe Benefit Tax (FBT) calculations.
Employers who provide fringe benefits have until May 31 to file their March quarter FBT returns or their annual return if applicable. So now is the time to be on top of the changes to ensure your FBT calculation is correct and maximise fourth quarter FBT savings.
The final quarter calculation reduces an employer’s FBT liability by utilising the alternate rate calculation. This aligns the FBT rate payable for benefits provided to your employees with the right remuneration band for their total taxable pay for the year.
The FBT rates range from 11.73% to 63.93%. If employers do not apply the alternate rate calculation, all benefits must have FBT paid at the top rate of 63.93%, so there’s a big financial incentive to make these calculations!
While it is possible to take care of these calculations yourself, having large amounts of employees or benefits can make this complex. If you use an Excel spreadsheet or bespoke software for the alternate rate calculation, you will need to update this to account for the threshold changes. But beware as there is also a formula change to be included for the 2025 year. So investing in specific FBT software or outsourcing the March quarter calculation will be money well spent.
Our key tips for paying the right amount of FBT are to review your benefits and ensure you are calculating these correctly and then applying all available exemptions. Here are some common issues we encounter:
- Some things employers treat as subject to FBT are actually subject to PAYE. The rules to work out which legislation applies are complicated and not necessarily obvious, but it is important to get this distinction right.
- If you are treating vehicles as exempt from FBT because private use has been restricted, make sure you have appropriate documentation in place and that you’re comfortable the employee is in compliance with this restriction. Similarly, for any exempt days that are being claimed, ensure the supporting reasons are well documented.
- If you keep vehicles subject to FBT for more than five years, you may be able to change to the tax book value method for calculating FBT, which can be a real cost saver.
- The catch-all unclassified benefit category captures a lot of benefits, including Christmas and long service gifts, non-cash performance rewards and numerous wellness-type benefits. The key is to identify all of these and if you are applying the de minimis threshold, make sure you track this carefully.
While we are still waiting to see the results of last year’s FBT review published, we are hopeful it will bring some welcome changes to reduce compliance costs.
Until then, Inland Revenue has been publishing a range of statements in the employment tax space. These include FBT and home to work travel, employee share schemes, and some interesting commentary about vouchers provided to employees and when these are subject to PAYE or FBT.
Some guidance is also on its way about how far the Health and Safety FBT exemption extends.
For assistance with your FBT return, or to catch up on developments, please reach out to your accountant or tax adviser.
Related: Year-end tax checklist
