While fringe benefit tax (FBT) makes up less than 1% of the Government’s tax take, experience shows that an IRD auditor will always ask a few questions about a company’s non-cash benefits. The rules say that a company needn’t pay FBT on a company vehicle when it is being used for work purposes or is not available for private use, but what people often don’t know is that it is calculated on a day-by-day basis.
Take a business owner who spends most of his day driving around various jobs and quoting on new business, or a sales person with a company car. Both may drive into work five days a week, be out on the road in their company vehicle most of the day, drive home, and then spend the evening making dinner, playing with the kids and watching TV. The car doesn’t leave the driveway until it’s off to work the next day.
Under such circumstances, the tax man may consider that the vehicle is being used purely for work purposes,and the company doesn’t have to pay FBT for those five days.
At the weekend, when the car takes the kids to soccer or the family out for dinner with friends, then FBT is due. However, cutting down your FBT liabilities on the vehicle from seven days a week to two or three can save around $2,100 a year on a $30,000 vehicle – more if the car is worth more. Not huge, perhaps, until you take it over a couple of vehicles for 10 years, and then the savings really become apparent. Fringe benefit tax on motor vehicles is a long term strategy.
It’s very case-specific, and the key is to sit down with your tax adviser and talk about your usage and then get an opinion from them about how much you owe. My standard process when I’m working with a company is to meet the employees and talk to them directly, then look at the company’s policies around car use. Then I give an opinion before we file the return.
This is important because if the tax department disagrees with what your company has filed and you have a tax opinion from a specialist, then IRD can’t impose penalties.
Did you know? Changes to FBT on employee packages
Other changes to FBT over the last couple of years also make it easier for companies to give employees benefits, without having to pay FBT. For example, income protection insurance provided by an employer is no longer taxable. And the IRD has relaxed rules around FBT on work tools like cellphones, laptops or iPads that are mainly for business use but are also used outside work.
In the past, the IRD used to have to go through phone records marking what was business and what was personal calls. Thankfully the tax rules have moved with the times as employees are increasingly mobile. At the end of teh day it’s about setting up the best employee package based on what your business is doing and what costs the least money in terms of FBT for your company. Just make sure you understand the rules.