Fringe Benefit Tax Tips

Updated: Aug 27, 2020

Fringe Benefit Tax is a time consuming and expensive tax that is imposed on any business providing a benefit to its shareholder-employees, employees or those associated to employees. It is worth having a general understanding of Fringe Benefit Tax requirements so that you make informed decisions.

What is not subject to FBT

FBT is not imposed on any cash type remuneration as these types of transactions are taxed through the normal PAYE system.

For FBT purposes, cash remuneration is:

• salary or wages

• lump sum bonuses

• schedular payments

• income attributed under the attribution rules

• payments to a specified office holder.

What is a Fringe Benefit that tax is payable on?

FBT is calculated using either of two options.

Alternate rate calculation process

Two options are available when calculating FBT using this process.

1. Full alternate rate

If you use this option, you'll need separate calculations for each

employee who receives attributed benefits. Non-attributed benefits are

pooled and taxed at 42.86% (or 49.25% in the case of benefits provided

to major shareholder-employees)

2. Short form alternate rate

A flat rate of 49.25% is applied to all attributed benefits.

Non-attributed benefits are pooled and taxed at 42.86%

Major Shareholder employees are taxed at 49.25%

Non-attributed and attributed fringe benefits.

Non-attributed – Some particular benefits don't have to be attributed to the particular employees.

Examples of these are

Fringe Benefit Tax Return Types and Dates

There are three types of FBT returns to select from:

Quarterly (IR420),

Income year (IR421)

Annual (IR422)

Non-attributed fringe benefits Certain benefits don't have to be attributed to the particular employees who receive them. These benefits are:

  • Subsidised transport of a taxable value of less than $1,000 per employee per year. There's a special rule for this - see page 20

  • Employer contributions to superannuation, where ESCT (employer superannuation contribution tax) doesn't apply, and insurance funds of less than $1,000 per employee per year

  • Benefits from loans on life insurance policies. A special rule applies - see page 27

  • Benefits that can't be attributed to particular employees (eg, pooled vehicles)

  • Benefits provided to ex-employees

  • Contributions to a sickness, accident or death fund of less than $1,000 per employee per year

  • Any other benefit with a taxable value of less than $2,000 per employee per year.

There are three types of FBT returns: quarterly (IR420), income year (IR421) and annual (IR422)

Quarters 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

This return is for companies that have shareholder-employees. It covers the same period as the company's accounting year. The due date for filing the return is the same as that for paying end-of-year income tax. You can file an income year return if:

  • You are a close company and your annual gross PAYE and ESCT deductions for the previous year are no more than $1,000,000, or

  • You only provide motor vehicles for private use to shareholderemployees and that benefit is limited to two vehicles, or

  • You were not an employer in the previous year.

For motor vehicles, there is a fringe benefit when:

  • There is a benefit;

  • The benefit is provided by an employer to an employee;

  • The provision of the benefit is in connection with employment; and

  • S CX 6 is satisfied (s CX 6, referred to in s CX 2(b)(i), is the only section relevant for motor vehicle fringe benefits).

A particular “advantage” must be sufficiently clear and definite that it can reasonably, practically and sensibly be understood as a tangible benefit.

Where a home is also a workplace and an employee is required for sound business reasons to travel to perform employment duties partly at the home workplace and partly at another workplace, then the FBT rules do not recognise any private benefit conferred by that travel.

The need for the travel must arise from the nature of the work and not from the personal choice or circumstances of the employee. Travel that is not work-related will be private use, while travel that achieves a workrelated objective will not be private use.

This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your normal source of expert advice before acting on anything.

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