On 29 August 2022 Inland Revenue released a 49-page report: “Fringe benefit tax: regulatory stewardship review”, which reports the summary, findings and recommendations of a review of New Zealand’s current Fringe Benefit Tax (FBT) regime – a regime whose design and operation has not been subject to a full review for nearly 20 years.
The report found that although FBT is performing its task of taxing non-cash benefits and hence supports the tax system as a whole, it was inconclusive as to whether FBT functions well. Consistent feedback received from interviewees was that the tax is complex and imposes a high administrative and compliance burden on taxpayers relative to the amount of tax that is payable.
Further, inequity concerns were also raised around inconsistency with compliance of the regime by all businesses, and the lack of enforcement of non-compliance by Inland Revenue. The report recommended FBT should be included in a future policy work programme to enable a full consultation process to occur which could be approached in one of three ways:
- A fundamental reform that considers whether what is subject to FBT versus PAYE should be re-aligned and / or re-establishing the scope of FBT to better target benefits that relate to remuneration of employees.
- A targeted review of specific items, such as motor vehicles, business tools and the “on premises” exemption (in light of the growth of flexible and agile working practices).
- A remedial project focussed on updating thresholds and de minimis amounts.
On the same topic of FBT, in line with a recommendation made by the 2017 Tax Working Group, the recent tax bill first released on 30 August 2022 includes a proposal to exempt from FBT certain public transport fares that an employer subsidises mainly for the purpose of an employee travelling between their home and place of work.
Under current legislation, contributions an employer makes to an employee’s public transport costs for travel between home and the workplace (e.g. by way of voucher or use of business credit card) are classified as unclassified fringe benefits, and as such, FBT is payable on such contributions unless the amounts are less than certain quarterly and annual thresholds.
In contrast, employer-owned carparks which are provided to employees are generally exempt from FBT due to the application of the “on-premise” exemption. Given the cost of CBD carparks can be significant, this differentiating treatment could result in businesses being incentivised to encourage the use of one transport mode over another.
The proposal in its current form lists specific public transport modes where the exemption would be available, namely: bus, train, ferry, tram or cable car. The bill commentary specifically states that other transport modes such as air transport, taxis, shuttles and other services (such as bike-sharing, ridesharing and e-scooter hire) would not be covered by the exemption.
The alignment in this proposal is intended to produce a more neutral FBT outcome between the options of travelling to and from work by car and travelling by more environmentally friendly modes of public transport, hence should generally be positively received by employers. However, for the FBT cynics out there, the prescriptive list of eligible public transport modes in the draft legislation may result in further administrative headaches. A review of the entire system cannot come soon enough.