Date posted: 30/09/2022

Time for FBT overhaul

Inland Revenue (IR) recently released its findings from a regulatory stewardship review of the fringe benefit tax (FBT). The findings and observations from CA ANZ and other submitters will not come as a surprise.

In brief

  • Inland Revenue released findings from their recent review of FBT
  • FBT is a complex tax with a high administrative and compliance burden
  • An overhaul is required

Following a recent review by Inland Revenue (IR), the fringe benefit tax (FBT) needs to be retained despite it not being a significant revenue earner.

In fact, FBT revenue is in decline and only accounted for 0.6% of total tax revenue in 2020. Why then is it so important? It serves a wider purpose – to support the tax system as a whole. An integrity measure to ensure that employment remuneration is taxed regardless of whether paid in cash or provided via non-cash benefit.

Yet it is a complex tax with a high administrative and compliance burden. Many submitters to IR felt that the tax had lost “any intuitive connection with remuneration.” IR stated that – it was not clear that FBT is a tax that functions well.

There is a clear view by submitters at least that FBT is not complied with by all businesses and that IR need to do more in terms of education and enforcement to ensure a level playing field for all. IR acknowledged that if this perception of non-compliance became intrenched it could undermine the integrity of the tax system and that this risk should be addressed. IR believe that “the use of START will enable a more timely and targeted compliance approach.” Visible policing of non-monetary employer provided benefits would be a great start to allay concerns.

So where to from here?

FBT needs an overhaul. The tax should be simplified and made fit for the future. Given its relatively modest revenue profile, CA ANZ favours a stripped back version that focuses on in-kind remuneration (including where the employee actually derives a benefit) and that strikes a commensurate compliance balance.

The current calculation of FBT on motor vehicles is both complex and onerous with a focus on availability for an employee’s private use. This has led to inefficient and non-commercial practices around travel arrangements that benefits no one, especially the environment. It also fails to recognise the home as a workplace. A simpler (and fairer) approach would be to focus on actual days of private usage.

However Inland Revenue may view simplification as an opportunity to tax availability of all motor vehicles, removing the vexed issue of concessions for work related vehicles.

Greater recognition of employee health and well-being is also needed. At present health insurance and gym or similar memberships are subject to FBT, while other well-being initiatives can be left in no-mans land. Often the “on-premises” exemption is used but is becoming less effective with more employees working from home.

Having a healthy and motived work force (both physically and mentally) makes complete sense from an employer and business perspective, even more so in a labour constrained environment.

The scope of “other benefits” also needs to change. Sending a get well card and flowers to an employee should be viewed as an expression of compassion rather than provision of a fringe benefit.

CA ANZ supports the IR review recommendation that a full policy project be undertaken with the aim of re-establishing the remuneration basis of the tax, modernising FBT and reducing compliance costs including full public consultation, and that current non-compliance should be addressed.

We encourage the Government to add this FBT project to the tax policy work programme when it is next revised.

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