Frequently asked questions: FBT Reflections and What You Need to Consider for Q4 Filing

1. Private use restriction only applies to a “work related vehicle” as per the definition which cannot apply to a vehicle designed to carry passengers – correct?

The private use restriction arrangement can be applied to any motor vehicles owned or leased by an employer. See [259] to [270] of IS 17/07.

2. Is a company owned motorbike used by a shareholder employee liable for FBT?

For the purposes of FBT, a "motor vehicle" (as per s 2(1) of the Land Transport Act 1998) includes most motor cycles, mopeds, cars, station wagons, vans and light trucks but does not include any vehicle with a gross laden weight of more than 3,500 kg.

As such, a company owned motorbike provided to a shareholder-employee for private use is subject to FBT. If the gross weight of the motorbike exceeds 3,500 kg, the benefits will likely be captured as a type of unclassified benefit and subject to FBT.

3. If an employer pays for the shareholder-employees private health and life insurance is this subject to FBT or would this just be treated as drawings because they are a shareholder-employee?

Generally, employer contributions to life insurance and health insurance are subject to FBT (see s CX 16). The same rule applies for shareholder-employees as essentially the insurance premium paid by the employer for the benefit of the shareholder-employees is a non-cash benefit that should be captured by the tax system.

There are fine nuances depending on the structure of the policy. Inland Revenue has published a number of Questions we've been asked items that deals with the income tax treatment of the different insurance policies with commentaries on the FBT implications (see QB 17/10, QB 18/04 and QB 18/05).

For instance, QB 18/04 concluded that in the case where a personal sickness and accident insurance taken out by an employee is paid for by the employer, the amount of the insurance premium is subject to the PAYE regime and FBT will not apply.

4. We have employees with company vehicles "company use only" who store these at home as they have to go to different client sites. Is there any risk here?

Yes, there is risk. Inland Revenue have stated that taking a company vehicle home to store it (either for safety considerations or other purposes) does not in itself make the journey work-related as a private benefit is still conferred (the travel between work and home). See [54] of IS 17/07.

5. If in the trust resolution its not clear if the beneficiary is rent free, then would the beneficiary be liable for FBT?

A FBT liability will only arise if there is an employer-employee relationship between the trustee and the beneficiary. The capacity in which the benefit is received is key to the determination.

If the trust is not a trading trust, then no FBT liability will arise. If the trust is a trading trust and the beneficiary is an employee, then analysis must be made of whether the house was provided in connection with the employment of that beneficiary. This will depend on the facts of the case.

If the resolution is not clear then arguably the rent-free availability of a house owned by the trust may be a capital distribution. Ideally the trustees can evidence that the provision of a rent-free house is not provided in connection with the beneficiary's employment.

Administration, particularly trustee resolutions recording trustee decision making, should be clear to ensure that there is no ambiguity (for tax purposes, IR reporting obligations and wider trust law purposes). These scenarios are fact specific as trustees may wish to record the market value of the rent, or they may attach nil value to the accommodation.

6. For $300 per employee per quarter, can that be $1200 per year in one go?

No, for a quarterly filer, the quarterly de minimis threshold for unclassified benefits is $300 per quarter. The $1,200 per year threshold only applies to taxpayers who are filing FBT on an annual or income-year basis.

7. Our employees do not keep log books to differentiate between private and public use of leased motor vehicles. With petrol expenses, how much is deductible. Will some petrol expenses require FBT to be applied?

Assuming the motor vehicle benefits are subject to FBT, the calculation for the value of the motor vehicle benefit takes into account all costs associated with the cars including fuel. So the petrol cost covered by the employer are likely to be fully deductible and not subject to FBT.

If the employee makes a contribution towards the fuel cost, the value of the motor vehicle benefit can be reduced by the portion of the employee contribution that relates to private use of the vehicle. (ideally there should be supporting evidence such as a log book or GPS travel records to demonstrate the private use portion). See [243] of IS 17/07.

8. Is the restricted motor vehicle use only for work-related vehicles that meet the work related vehicle exemption requirements?

The private use restriction arrangement can be applied to any motor vehicles owned or leased by an employer. See [259] to [270] of IS 17/07.

9. If employees are transferred between associated employers (eg business restructure) who are separately registered for FBT, should the employees annual salary/wages be apportioned between the employers for the purposes of calculating after tax cash pay in the Q4 FBT return?

For the purposes of the Q4 full alternate rate calculation option, when calculating an employee's all-inclusive pay for the year (the formula is cash pay - tax on cash pay + taxable value of all fringe benefits, see s RD 51), the cash pay is defined as the total cash pay paid by the employer or a related employer (see s RD 41(4)).

The definition of "related employer" means a branch or division of an employer, or a person associated with the employer (see s RD 51(6)). Therefore, the calculation takes a global view and includes all salaries/wages from the employer and any associated employers.