Many businesses will soon be starting to assess all the non-cash benefits provided to employees to determine whether or not Fringe Benefit Tax needs to be accounted for in their March quarter FBT return (due before 31 May). Graham Lawrence provides a useful guide to Fringe Benefit Tax to help businesses avoid making mistakes that could hurt profitability.
Employers Applying the Maximum FBT Rate Across the Board
Employers do this believing that;
- The attribution rules are too complicated to apply;
- Any savings achieved by undertaking a multi-rate calculation are immaterial; and
- The compliance costs associated with applying the attribution rules are too great.
The FBT reviews we’ve undertaken after going through the attribution exercise have resulted in significant net savings for our clients. It’s a mistake to rule it out altogether.
GST Inclusive Employee Benefits
All fringe benefits need to be calculated on a GST inclusive basis. So when calculating FBT it is important to ensure that the cost base for each benefit is correct. This means not only ensuring that the original cost is correct, but also that the GST component has been accounted for.
Claiming GST on FBT in the Company GST Return
A company cannot claim GST on FBT via the company GST return. Instead this should be claimed as a tax deduction. If you have been returning the GST in the GST return then please contact us to discuss how to rectify this before 31 May.
FBT on Employee Insurance Schemes
Most medical insurance schemes are subject to FBT. Therefore, if you make contributions to any medical insurance schemes on behalf of your employees, then it is likely that the premiums will be liable for FBT.
We have noticed cases where FBT is being paid on superannuation when specified superannuation contribution withholding tax (SSCWT) has already been paid, resulting in an overpayment of FBT. Remember, FBT on employer contributions to superannuation schemes is only payable where SSCWT does not apply.
FBT on Motor Vehicles
Of all the areas covered in this fringe benefit tax guide, FBT on motor vehicles is the one which we receive the highest amout of queries. If you provide motor vehicles to your employees you may have heard a lot about restrictive use agreements. In summary, you may not be required to return FBT on the motor vehicle for part of the normal working week, provided the following circumstances apply:
- The employee is out of the country;
- The motor vehicle cannot be safely parked at the company premises;
- The employee is required to work from home;
- The employee operates out of the motor vehicle for work purposes.
If any of these circumstances apply, please contact us to discuss further.
FBT may apply to free overseas trips provided to employees as a reward. Where an employer pays for all or part of an employee’s overseas trip, which is not work related, the total value of the employer’s contribution may be liable for FBT.
Subsidised or Discounted Goods and Services
Goods supplied to employees as a reward is a very complex area because it all depends on whether the employer manufactured or purchased the goods. In such situations it’s best to call us to discuss, because the answer will depend on your unique circumstances.
Treatment of Shareholder Current Accounts
FBT must be accounted for on any overdrawn shareholder current accounts. In instances where a shareholder-employee has an overdrawn current account, the company must either pay FBT or, alternatively, charge interest. As the circumstances of current accounts differ, you will need to determine which option is best for you.
Cross-Border Payroll Processing
New Zealand is fast becoming a country that relies on importing talent from overseas (mainly Australia) to fill senior positions. Similarly more and more trans-Tasman organisations are moving their New Zealand payroll function to Australia. When it comes to processing payroll there are obvious differences in the way certain items are treated between the two countries, including the method of calculation and the return filing obligations. For example, New Zealand does not have salary sacrifice rules, while Australia does.
Using Current FBT Rates
There have been a number of tax rate changes over the last 5 years and it is still common for outdated or incorrect rates to be used. Furthermore, the use of the old rates when calculating the taxable benefit of a motor vehicle, or in some circumstances not considering the best method, has slipped under the radar.
From 1 April 2006, the annual FBT rate reduced from 24% to 20% when calculating the taxable benefit of a motor vehicle, giving an equivalent quarterly rate of 5%. Employers also have the option to use the Tax Book Value Method when calculating FBT on motor vehicles and, depending on the value of the vehicle and intended life of ownership, this method can be more advantageous.
It is also important that the most up to date rate is used when applying the FBT prescribed interest rate to low interest loans.
Exemptions for Unclassified Employee Benefits
Some benefits which often go undetected include vouchers, Christmas gifts and leaving gifts given to employees. Unfortunately it is likely they will be subject to FBT unless the amounts provided are of small value.
Charities and FBT
As hard as it is to believe, more charities are going to find themselves caught in the FBT net from 1 April 2014. This is because of the fundamental changes to the rules surrounding short-term charge facilities (e.g. vouchers, see below) provided by charities to their employees.
Briefly; leading up to 31 March 2014 short-term charge facilities were only liable for FBT if they exceed 5% of the employee’s salary or wages for the year. However, from 1 April 2014 the threshold will change to whichever is the smaller amount of:
- 5% of an employee’s salary or wages for the year, or
- $1,200 for the year.
There have also been significant changes to the provision of vouchers given to employees.
What do you need to do?
Some charities may no longer be exempt from paying FBT. If the charity provides vouchers and/or short-term charge facilities to any employee that exceed the new threshold, the charity will need to:
- Register for FBT;
- Return any fringe benefits provided by completing an FBT return, and
- Pay FBT by the due date.
How can we help?
At Bellingham Wallace we offer a number of services to clients to ensure Fringe Benefit Tax obligations are being met, including:
Healthcheck Review: We will sit down with the person responsible for paying for employee benefits in your organisation, interview them, assess the areas outlined in this fringe benefit tax guide and ensure compliance with the FBT rules. Following this we present our findings and recommendations to the organisations management team.
Maintenance Review: We review your Fringe Benefit Tax calculations and confirm that the calculations are in agreement with current fringe benefit tax rules. This service is ideally suited to an organisation that has previously had a Healthcheck and no additional benefits have been provided to employees.
Consultation: We meet with you to discuss your particular circumstances and recommend how you should be returning Fringe Benefit Tax. This service is ideally suited to an organisation that is looking to provide benefits to employees, but first wants to understand the true cost of providing these benefits and the best way to structure them.
Employee Remuneration Review: We undertake review your employees’ remuneration, including:
- What each employee is currently remunerated on;
- What each employee is expected to be remunerated going forward;
- Consider and provide recommendation on the best way to structure the remuneration
This review is particularly helpful when organisations are looking to structure employee incentives and remuneration in the most tax efficient manner, while also being mindful of individual circumstances, such as child support obligations.