Common error – claiming GST on FBT

For those of you who prepare and file FBT returns on behalf of a GST-registered employer, you will be familiar with the GST on FBT adjustment that forms part of the FBT return.

The adjustment itself is straight-forward and involves calculating GST on the gross taxable benefits that are subject to GST, and including this as part of the FBT payable. However, a very common misunderstanding is that this GST amount is then able to be claimed in the GST return.

A benefit provided to an employee (e.g. a Christmas Gift) is deemed to be a taxable supply for GST purposes (akin to a sale). The GST adjustment in the FBT return is the mechanism by which the GST on the deemed supply is paid to IRD. Another way to think of it – when the employer originally acquired the Christmas gift the GST was claimed on purchase. However, because the gift is consumed privately (i.e. not used in the business) the GST shouldn’t be claimed and the GST on FBT adjustment is the mechanism to reverse the original claim.

It is common to see the words “GST” and split the total FBT payable between the two taxes for coding purposes, resulting in the GST being re-claimed in the next GST return. But this is incorrect – it is akin to claiming GST on a sale.

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