With the 31st March period approaching, employers wil now be turning their attention to employee packages to ensure they are market comparable. . This may include non-cash benefits which in most cases have tax costs associated with them. In tax speak, a non-cash benefit provided to an employee by an employer is called a “fringe benefit”. These benefits are not income in the traditional sense like wages and salaries; therefore they are not taxed under the income tax regime. A Fringe Benefit Tax (“FBT”) was introduced to tax these non-cash benefits provided to employees. There are some exemptions available; the question is, are employers making the best use of these? We explore below the most common of these benefits along with possible planning ideas to mitigate FBT.

Motor vehicles

If a motor vehicle is available for use by an employee, an employer will be liable for FBT. It is important to note the vehicle only needs to be available for private use. Whether the vehicle is actually used privately or not is irrelevant to Inland Revenue.

There is an exemption available when a vehicle provided to an employee is classified as a “work-related vehicle”. There are four requirements to be satisfied for this exemption and all four requirements need to be met for the exemption to be valid:

• The vehicle must be a motor vehicle;
• The vehicle must have permanent signage and be prominently displayed on the exterior of the vehicle. Removable or magnetic signage is not enough;
• The vehicle must be designed to carry goods only, or goods and passengers equally; and
• Employees must be notified in writing that the vehicle is not available for private use, except for travelling between work and home and any travel incidental to their business travel.

We are now coming into the fourth quarter for FBT returns so it is a great time to consider how you are treating your employees' motor vehicles. Currently, FBT on motor vehicles is calculated based on the number of days the vehicle is available for an employee’s private use. How and where your employees are working is forever changing and how you might have treated your motor vehicles for FBT last year can be quite different to how they should be treated this year.

In today's age the tax rules recognise that employees are working from more than just the office. Several business’ have itinerant workers, where the employee continuously travels from one workplace to another. Sales employees are a great example of this; the employee may have a physical office at their work headquarters; however, the employee may travel to and from clients, as well as work from home so an employee’s workplace incidentally becomes several workplaces, each of which can change daily. For these employees there may be an opportunity to reduce the amount of FBT paid.

Free, subsidised or discounted goods and services

Employers frequently provide free, subsidised or discounted goods or services. If goods and services are provided to an employee at less than the cost to the employer, the employer will be liable for FBT. For example, a free gym membership or subsidised travel for the employee’s family will trigger FBT.

However, if an employee pays the lesser of either (i) 95% of the cost price to the employer, or (ii) 95% of the selling price to the public, then the employer will not be liable for FBT.

Where goods are provided to employees to be used mainly for business purposes, such as a laptop, the private use element will be exempt from FBT providing the laptop costs less than $5,000. If the cost of the laptop is more than $5,000, then FBT will be payable.

There is an exemption available for unclassified benefits. An unclassified benefit includes employment-related gifts such as flowers to an employee on the birth of a child or on a family bereavement. The test for the de minimis exemption depends on what type of FBT return the employer files. For quarterly returns, no FBT is payable provided (i) the total taxable value of unclassified benefits provided in the quarter to each employee does not exceed $300, and (ii) the total taxable value in the last four quarters of all “unclassified benefits” does not exceed $22,500.

Benefits regarding hazard management, such as protective clothing, flu shots and other health checks are exempt from FBT, regardless of where the benefit is provided. Car parks are not subject to FBT providing the car park is on the employer’s premise, so be wary of those car parks provided outside of your premise

In closing…

The above is an overview of some of the main FBT obligations and exemptions to consider when reviewing employee packages and indeed your 31st March 2020 FBT return which is due 7th May 2020. If you require a review to be undertaken, we have found it helpful to undertake a health check to assess your business’s specific implications which can also highlight opportunities to restructure employees packages with a lower tax cost. Your Bellingham Wallace tax advisor would be happy to review your situation and help you select the best option for your business.

By Graham Lawrence (Director) and Hrisoula Lilley (Senior Tax Advisor)