For our first newsletter of the year we have the second article from Ravi Rudra, Accountant, on Fringe Benefit Tax implications and an update on the Minimum Wage Act effective from 18 March 2002
Fringe Benefit Tax
Fringe benefit tax ("FBT") came about because the government perceived that its tax base was being eroded. Many people were taking fringe benefits as part of their salary package. These fringe benefits were not taxable in the hands of the employee but were still tax deductible for the employer.
FBT is a tax payable to the value of fringe benefits provided to employees by an employer. The reason an employer is taxed, rather than an employee, is to encourage a shift to remuneration paid in cash rather than a payment in kind, and to control administration. It is easier to assess one employer rather than a multitude of employees.
Examples of fringe benefits include the use of a motor vehicle, a low-interest loan, subsidised transport, payment of life insurance premiums or contributions to a superannuation scheme.
For FBT purposes, an employee is any person who receives source deduction payments. This includes any person who receives income from salary, wages, extra emoluments or withholding payments such as commission, directors' fees. Associated persons (such as an employee's spouse or child) and past employees are also included within the definition of employee.
The value of the benefit is set either by the government ruling, as in the case of motor vehicles (24 % cost of the car), or by the value of the discount given.
FBT is paid quarterly, or annually, if you are prepared to pay interest to IRD. This gives the same overall tax effects as if you had given the employee the cash to buy the benefits and the employee paid 33% tax on that cash.
General principles for FBT on motor vehicles
Motor vehicles form one major category of fringe benefits liable for fringe benefit tax. The following general principles apply to fringe benefit tax on motor vehicles.
- As long as a vehicle is available for private use (for example, travel between home and work) by your employees, including shareholder-employees, you must pay fringe benefit tax. Your liability does not depend on whether the employees actually use that vehicle
- There are some general exemptions and some daily exemptions from fringe benefit tax on motor vehicles
- Sole traders or partners in a partnership are not required to pay fringe benefit tax on a business vehicle they use privately. However, they usually record their business use of the vehicle, as they must make an appropriate adjustment in their income tax and GST returns.
| Vehicle owner |
Available to |
May affect |
| Business |
Employee |
FBT, GST |
| Sole trader |
Sole trader |
Income tax, GST |
| Partnership |
Partner |
Income tax, GST |
| Company |
Shareholder-employee |
FBT, GST |
What rate of fringe benefit tax do I pay?
You can choose to pay either the flat rate of 64% or the multi-rate calculation process. If you file quarterly returns, your choices in the first three quarters affect which alternative you can use in the final quarter.
Should I choose to pay the flat rate or use multi-rate calculations to pay fringe benefit tax?
It depends on your particular situation. The multi-rate option may require more record keeping and involves a lengthier calculation process - on the other hand, these demands may be offset by tax savings.
Under what circumstances is it an advantage to use the flat rate of fringe benefit tax?
Using the flat rate may be an advantage if all employees receiving fringe benefits are higher-income earners (over $60,000 annually). Under the multi-rate system, FBT on their fringe benefits will be approximately 64% (assuming non-attributed benefits are not involved), and may involve more record keeping.
Minimum Wage Rates
From 18 March 2002 the new statutory minimum wage rates for all employees aged 16 and over are as follows:
The minimum rate for youths (16-17 years) is: $6.40 per hour
- $51.20 per 8 hour day
- $256.00 per 40 hour week
The minimum rate for adults (18 and over) is: $8.00 per hour
- $64.00 per 8 hour day
- $320.00 per 40 hour week
The minimum rates apply to employees whether they are full time, part time or casual and apply to each hour worked in excess of 8 per day or 40 per week unless an Under Rate Permit has been issued.
