What are fringe benefits?
Fringe benefits cover most of the benefits you give to employees in addition to their salary or wages. Examples are motor vehicles, low-interest loans, free or discounted goods and services, and employer contributions to sickness or death benefit funds.
Are you providing fringe benefits?
When you register as an employer, you indicate whether you will provide fringe benefits to your employees. In some cases you may not initially provide fringe benefits but at a later stage you begin to provide them. If so, please contact us to let us know about the change.
What do fringe benefits include?
Fringe benefits (perks) include most benefits given to employees in addition to their salary or wages. This section gives an overview of the categories of benefits that are liable for fringe benefit tax, and those that are not.
For the purposes of record keeping and FBT returns, you should also be aware of attributed and non-attributed benefits.
- Attributed benefits are attributable to one specific employee
- Non-attributed benefits are pooled or shared fringe benefits that are not attributed to an individual employee
When you register as an employer, you indicate whether you will provide fringe benefits to your employees. In some cases you may not initially provide fringe benefits but at a later stage you begin to provide them.
If so, contact Inland Revenue to let them know about the change.
What are the categories of fringe benefits?
Fringe benefits cover most of the benefits you give to employees in addition to their salary or wages.
Examples are motor vehicles, low-interest loans, free or discounted goods and services, and employer contributions to sickness or death benefit funds.
The 4 main groups of fringe benefits are:
- Motor vehicles
- Low-interest loans other than low-interest loans provided by life insurance companies
- Free, subsidised or discounted goods and services, including subsidised transport for employers in the public transport business
- Employer contributions to sick, accident or death benefit funds, superannuation schemes and specified insurance policies.
Gifts, prizes and other goods are fringe benefits. If you pay for your employees’ entertainment or private telecommunications use, these benefits may also be liable for fringe benefit tax.
Benefits in all these categories are liable for fringe benefit tax (although see each individual category for exceptions). They may be attributed or non-attributed benefits.
What is Fringe Benefit Tax?
As an employer, you are liable to pay fringe benefit tax on the fringe benefits that you give to your employees or shareholder-employees.
Fringe benefit tax (FBT) is a tax on benefits that employees receive and enjoy as a result of their employment.
- Employees may be past employees, as well as present or future employees. For example, your liability continues if your employer status changes, but you continue providing a fringe benefit (for example, a low-interest loan) to a former employee.
- Liable benefits include benefits that someone gives to employees or shareholder-employees on behalf of the employer.
What is NOT liable for Fringe Benefit Tax?
Benefits that are not liable for fringe benefit tax include:
- cash remuneration (e.g, salary and wages, lump sums, bonuses, withholding payments, interest and dividends)
- benefits given instead of a non-taxable cash allowance (for example, a meal given instead of a meal allowance)
- free board and lodging
- some forms of entertainment
Fringe Benefit Tax on specific benefits
Motor vehicles, low-interest loans, free, subsidised or discounted goods and services, employer contributions to funds, insurance and superannuation schemes and other benefits.
- Motor vehicles.
As a general rule, as long as you have a vehicle available for an employee to use privately, you will have to pay FBT whether or not your employee actually uses the vehicle privately. But there are certain exemptions from FBT – general and daily.
- Low-interest loans.
FBT is charged on low-interest loans made to employees. A loan includes all advances (such as salary advances), deposits, money lent in any other way, and any credit given (including delaying the recovery of a debt). FBT is not charged on the actual loan provided by an employer to an employee. FBT is calculated on loans by comparing the interest on the loan with the interest calculated using the prescribed rate.
- Free, subsidised or discounted goods and services.
If goods are provided for an employee at less than the cost to the employer, then this is a fringe benefit. Also if services are provided to an employee at less than the normal cost to the public, this is also a fringe benefit.
- Employer contributions to funds, insurance and superannuation schemes.
Any contributions you make for your employees to any of the following are subject to FBT. This includes contributions to sick, accident or death benefit funds, insurance fund of a friendly society, life, pension, personal accident or sickness policies and superannuation schemes to which SSCWT does not apply.
- Other benefits.
There are some other benefits that may also be liable to FBT.
Rate of Fringe Benefit Tax
You have choices regarding the rate of fringe benefit tax you use, depending on which type of return you file. You should also be aware of the rates required for major shareholder-employees. Learn the different options for FBT rates (full multi-rate, short form multi-rate) for employers and if they apply to you.
- Know how to calculate FBT payable for shareholder-employees and employees receiving attributed income using the flat rate or the multi-rate also if it applies to you as an employer.
- You can choose to pay fringe benefit tax at a flat rate of 64% on all benefits you provide to employees, including shareholder-employees. Learn about the use of the flat rate option to calculate FBT.
- The multi-rate calculation process allows an employee’s fringe benefits to be taxed at their marginal tax rate. It ensures that fringe benefits of employees earning less than $60,000 are not over-taxed (as they may be under the flat rate option). Learn the use of the multi-rate calculation process to calculate FBT as an employer.
Non-attributed benefits are pooled or shared fringe benefits that are not attributed to an individual employee. For example, a non-attributed benefit is a motor vehicle of which no one employee has principal use.
In the final quarter, quarterly filers must check their non-attributed benefits to ensure that the annual taxable value of the employee’s benefits in a particular category is less than the thresholds under attributed fringe benefits.
Rate of FBT on non attributable
Generally, the FBT rate is 49% for non-attributed benefits. The exception is where one or more of the recipients are a major shareholder-employee or an associated person of a major shareholder-employee.
If one of the recipients of the non-attributed benefit is a major shareholder-employee or an associated person of a major shareholder-employer (where the fringe benefit is not received as an employee), the FBT rate of 64% applies.
Four employees had the private use of a car during the quarter (where the employer, Jane Bloggs Limited, is filing a quarterly FBT return).
- Two of these employees had the car for 27 days each.
- Two of these employees had the car for 16 days each.
As no one employee had the principal use of the fringe benefit, Jane Bloggs Limited treats it as a shared vehicle. However, if one of the four employees had greater use of the car, the company would attribute the whole benefit to that employee.
Employer obligations for FBT
As an employer, if you provide fringe benefits (perks) to your employees, or other people associated with your business, you must generally pay fringe benefit tax on the value of these benefits.
If you are liable for fringe benefit tax, you must file regular FBT returns. These returns may be for each quarter, the income year or annual. For any type of FBT return, where fringe benefit tax is not paid by the due date, use-of-money interest is charged.
What are your obligations when status change?
In all cases when your employer status changes, you must file FBT returns until you stop providing fringe benefits.
- If you stop employing and also stop providing fringe benefits, let IRD know. You must file a final return to cover the period up to the date you stopped employing.
- If you stop employing or discontinue your business but still provide benefits to past employees or shareholder-employees, continue to file FBT returns. For low-interest loans, you must file returns until the total loan is repaid.
When do these obligations NOT apply?
As an employer, you are not liable for filing an FBT return if:
- You do not provide fringe benefits and
- You do not intend to provide them.
Filing an FBT return
You will file one of the following kinds of FBT returns:
- Fringe benefit tax annual return (IR422), which covers the year ended 31 March and is due on 31 May
- Fringe benefit tax income year return (IR421), for a company with shareholder-employees, which covers the company’s accounting year and is due at the same time as the company’s due date for paying its end-of-year income tax
- Fringe benefit tax quarterly return (IR420), for employers who must file an FBT return each quarter. See more on quarterly returns in regard to due dates and which employers are required to file them.
Penalties and interest may apply if you do not file your return by the due date.