What is a fringe benefit?
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.
Types 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 5 main groups of fringe benefits are:
- Motor vehicles available for private use
- Free, subsidised or discounted goods and services
- Low-interest loans
- Employer contributions to funds, insurance and superannuation schemes.
- Other benefits – entertainment and cash benefits etc
Gifts, prizes and other goods are also 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.
If any of the above benefits are received by your employees as a result of their employment, you may need to pay FBT:
What is Taxable Value?
Taxable value is the actual cost of the fringe benefit. The way you work out the actual cost, or taxable value, depends on the type of benefit and who you provide it to. For example, the way you work out the taxable value of a motor vehicle is different from the way you work out the taxable value of a low interest loan. You need to know the taxable value in order to calculate FBT.
Why FBT was introduced
While the cash benefits you give employees (e.g. salary or wages) get taxed through income tax, the non-cash benefits don’t. FBT was introduced to tax these non-cash benefits (fringe benefits). Now, all employee benefits – both cash and non-cash – get taxed equally, no matter how they’re provided. It keeps things fair.
When to register for FBT
As an employer, you need to register for FBT when you first start giving your employees, shareholders, or other people associated with your business, a fringe benefit. You can choose to register for FBT when you complete the Employer registration form (IR334).
If you already provide fringe benefits, but aren’t registered yet, you may have to backdate your tax payments.
What to do once you’re registered
Once you’re registered for FBT you need to:
- Find out about the rules for the fringe benefits you provide..
There are different rules and exemptions for each type of fringe benefit, including the way you work out and record their taxable value.
- Choose a filing frequency.
There are options for filing and paying FBT quarterly, annually for the tax year, or annually for your income year. Your choice of filing frequency might be limited depending on the type of company you have and how much tax you pay each year.
- Choose a FBT rate and use it to calculate the FBT on the fringe benefit.
FBT is a percentage of the taxable value of the fringe benefits you provide. There are three different rates you can choose from, with pros and cons to consider for each.
- File FBT returns and pay FBT by the due date.
The easiest way to file FBT returns is online. We also mail out paper returns which you can fill in and mail back. You can claim the FBT you pay as a deduction in your income tax return.
Business-related entertainment expenses, where the benefits are enjoyed by employees, can be subject to FBT. If it’s an entertainment expense which is only 50% deductible (because it has a significant private element), it isn’t subject to FBT.
The exception is if:
- your employee can choose when and where to enjoy the benefit, or the benefit is enjoyed outside of New Zealand, and
- the benefit is not provided in the course of, or as a necessary consequence of, the employee’s employment duties
You don’t have to pay FBT if you make a cash payment to an employee. Instead, you treat the cash payment as part of the employee’s salary or wage and make normal employee deductions (like PAYE).
Attributed and non-attributed benefits
Attributed benefits are fringe benefits assigned to an individual employee that only they use or enjoy. For example, Jack’s monthly bus pass. Non-attributed benefits are pooled or shared fringe benefits that are not assigned to an individual employee. This option is useful when all employees have the same or similar rights to a particular benefit. For example, a work motor vehicle that everyone can use.
Some non-attributed benefits need to be attributed when you calculate FBT.