Fringe benefits for staff.
One of the most common forms of fringe benefit has traditionally been the provision of a motor vehicle for the private use of an employee. If the employee uses his/her own vehicle for business purposes and is reimbursed for having done so, the amount of the reimbursement is not taxable in the hands of the employee and is not subject to fringe benefit tax (FBT). But where an employee has the use of a business vehicle, and is able to use it privately, even if he/she does not do so, there is generally a fringe benefit being provided.
One of the commonly misunderstood exclusions to this is where the vehicle is prominently and permanently signwritten and the vehicle is not available for private use by the employee. Many employers believe that as long as the vehicle is signwritten it is out of the FBT net. They are wrong. First, the sign writing must be sufficiently prominent and permanent. Taxi cabs, for example, are now often using magnetic sign writing so that it can be removed when the vehicle is not in use as a taxi. However this is not sufficiently permanent.
Some vehicles have the name of the business in small letters along the base of the door. This is probably not sufficiently prominent. Even if the sign writing cuts the mustard, if the vehicle can be used for more than incidental private travel, the vehicle is still subject to FBT at least on those days.
Another thing that catches employers out is that a motor vehicle must only be available for private use to be a fringe benefit. If the employee can take the vehicle home at night but does not, it is still a fringe benefit.
Availability is not the test for most other fringe benefits. The IRD has recently confirmed that generally, if a fringe benefit is available to an employee, but is not used, there is no benefit. For example, if an employee can take home goods at less than the market price but they do not do so, there is no fringe benefit.
Another common "fringe benefit" is the use of a laptop, iPhone or iPad at home. If the cost of these items is over $5,000 then a fringe benefit arises. But in most circumstances the cost is less, and the benefit is not subject to FBT.
The provision of car parks for employees is also a contentious issue. If car parking is provided to employees by the employer, and the car park is off-site, there is a fringe benefit being provided. Where the car park is on-site, the provision of the car park is exempt from FBI. A concern has been raised that the provision of free car parks to employees generally is encouraging them to take their own vehicles rather than use public transport. The IRD is looking to review the treatment of on-site car parks.
Recently we have also seen businesses offering life insurance cover to employees at the cost to the employer, but the employer is choosing to insure part of the value of the life cover with an independent provider, and looking to cover the balance themselves. This also constitutes the provision of a benefit and FBT should be calculated accordingly.
We're likely to see more employers looking at innovative ways of providing greater value to their employees, while minimising costs. Be aware that the IRD has looked at the possibilities of taxing "salary trade-offs", otherwise known as salary sacrifices. This is currently limited to the provision of on-site car parks, childcare provided on employers' premises and certain benefits offered by charities. However, this approach may be adapted to meet changing circumstances.
We recommend discussing any proposed benefits with your tax adviser.
JAROD CHISHOLM IS A TAX PRINCIPAL FOR WHK, DUNEDIN. EMAIL JAROD.CHISHOLM@WHK.C.O.NZ
JAROD CHISHOLM DEMYSTIFIES THE PROS AND CONS OF FBT FOR BUSINESS OWNERS WHO WANT TO REWARD STAFF
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|Title Annotation:||On Accounts|
|Date:||Jul 1, 2012|
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