Fringe benefit tax (FBT) is often seen as complex, costly to comply with, easy to get wrong, and not universally complied with. It raises only modest revenue yet remains in place for one important reason: to protect the PAYE system.

Before FBT was introduced, employers could sidestep PAYE by boosting remuneration through non-cash perks. Only the cash salary was taxed, leaving benefits untouched. FBT closed that loophole and it still needs to.

If we’re stuck with FBT, let’s make it fit for purpose. That means refocusing it squarely on benefits that substitute for salary, and stripping back unnecessary complexity. Inland Revenue’s current proposals aim to do exactly that, with a fiscally neutral package targeting two big compliance pain points: motor vehicles and other benefits.

Proposed FBT changes to provide:

• Greater alignment to purpose of FBT
• Fiscally neutral
• Reduced compliance costs
• More rational basis for calculating FBT on motor vehicles

CA ANZ is fully supportive of the current proposals to overhaul FBT on motor vehicles and other (unclassified) benefits. The current FBT proposals are well thought through and reflect extensive collaboration and engagement with external parties including representative impacted employers. Further refinement from the public consultation process can also be expected.

As structured the proposals should significantly reduce compliance costs imposed on employers, simplify the overall calculation of FBT, and thereby make it easier for employers to calculate their FBT obligations correctly.  A win-win for all.

Motor vehicles: one-and-done

For vehicles, the proposed “set-and-forget” approach would replace the need to log every day the vehicle was available for private use. The fringe benefit value would be calculated once for each vehicle, based on a revised cost component percentage (using updated AA running-cost data and MBIE fuel data) and appropriate use-based percentage (determined with reference to specified categories).

This will save time and reduce record-keeping errors. But employers with petrol, diesel or hybrid fleets may see higher FBT bills — partly offset by compliance savings.

Other benefits: back to genuine ‘in-kind’ pay

Proposed changes to other (unclassified) benefits return focus to “in kind remuneration” (a thank you gift for a job well done, bereavement flowers, or a birthday card) would no longer be considered a fringe benefit. The current $300-per-employee-per-quarter and $22,500-per-employer per annum caps would go.

Under option one (preferred by CA ANZ), a benefit provided to an employee would be exempt if:

• it is not provided in substitution for remuneration, and 
• the taxable value is less than $200

While there is no proposed limit on the number of benefits provided to an employee, the frequency of repeated benefits could indicate a remunerative purpose (i.e. salary in disguise).

Simplification does not mean a reduction in FBT

While some employers will pay less FBT on minor benefits, others particularly with higher-cost or fuel-powered vehicles may pay more. Inland Revenue anticipates the overall package will be broadly revenue neutral. CA ANZ considers there could be a possible uptick in revenue collection as compliance improves.

Environmental and practical upsides

Replacing the “work-related vehicle” exemption with use-based categories (as part of the motor vehicle fringe benefit calculation) could encourage businesses to choose vehicles that match actual needs, reducing legislation-driven demand for oversized models.

Tradespeople will still need utes or vans to carry equipment and provide a mobile work platform, however for many staff working in urban environments there is no actual need to drive such vehicles. Employers could provide these staff with smaller, more efficient vehicles. The classification of the vehicle based on its intended use will determine the extent to which the vehicle is subject to FBT, not it’s physical characteristics.

Busting the exemption myth

Many believe that if a vehicle isn’t mainly designed to carry passengers, no FBT is payable. This is not correct in and of itself as other criteria must also be satisfied for the work-related vehicle exemption to apply on any given day.

The most overlooked of these is that employees must be notified in writing that the vehicle is not available for private use except for travel to and from their home that is necessary in, and a condition of, their employment. If the vehicle is used for private enjoyment outside these parameters, it is not eligible for the exemption. The requirement that the vehicle must be sign written is also frequently overlooked.

Many taxpayers currently claiming the exemption are not compliant and should be paying FBT under the existing rules.

Overall, these proposals are intended to make FBT simpler, fairer, and easier to comply with while keeping PAYE protection intact. That’s a win for employers, Inland Revenue, and the integrity of the tax system.