Author Archives: Allen Knight

How to correct FBT returns

Correcting errors in a filed FBT return is not as simple as washing them through the fourth quarter attribution calculations. The fourth quarter FBT return true-up is just a true-up between FBT rates. Errors in the taxable value of benefits in earlier quarters is not technically part of this process. While these errors can be flushed through the true-up process at a practical level, you may actually just be hiding error corrections that are subject to specific rules in the tax legislation.

FBT return corrections under Section 113A

Under section 113A of the Tax Administration Act 1994, errors can be corrected in the next FBT return after the discovery of the error when:

  • you have filed an FBT return that contains errors; and
  • the errors were a “clear mistake, simple oversight, or mistaken understanding on your part”; and
  • the total discrepancy in the amount assessed in aggregate is $500 or less.

This only be done in the next FBT return after you discover the error. If you find an error relating to the first quarter FBT return while preparing your second quarter FBT return, you can’t wait until the fourth quarter washup to correct it under Section 113A. If you make a Section 113A correction, Inland Revenue require you to document the details including:

  • the return period the error occurred in
  • the FBT amount involved
  • the type of error
  • the FBT return period the correction was made.

We suggest you review Inland Revenue’s Standard Practice Statement 07/03 – Requests to amend assessments (May 07) if you intend using Section 113.

FBT return corrections above the $500 threshold

Technically you will need to file a notice of proposed adjustment. Use of money interest and penalties may be applicable.

We recommend you deal with errors quickly. However, always speak to your tax adviser before contacting Inland Revenue as they will be able to give you practical guidance that will reduce exposures.

What happens when you are using FBT software

FBT software results in fewer errors. It is often implemented as part of wider FBT process improvement that involves better identification of fringe benefits each quarter, which is an area of high risk. FBT software has sense checks to prevent common errors before you file. However, FBT software also makes it easier to pick up prior period errors in Quarter 4 and to true them up as part of the attribution process. Contact us today to find out more about how FBT software can help you reduce FBT errors.

FBT on car parks provided by employers

We already have FBT on car parks

A lot has been said about the proposed ‘carpark tax’ in recent weeks. I hesitate to comment too formally on the matter because its complex. However, one thing seems to be overlooked in the press coverage so far: There is already FBT on car parks under the current rules. A lot of media reports have been promoting this as a new tax, when in fact its not.

Overview of how it works

Providing a non-cash benefit to an employee is subject to FBT by default. It may then be exempted or valued to zero. Providing a carpark to an employee is an unclassified benefit, meaning it is caught under the catch all rather than specifically. However, there is an exclusion for benefits that are provided on-premises. This includes car parks as long as they are on a business premises.

When is a car park on-premises?

This is where it gets a little weird. If you lease a property, or even just a single car park and have an exclusive right to it, then that is a business premises and the exemption applies. However, if you don’t have an exclusive right to it because you license the right to use one park from many (i.e. a park on a floor shared with other people) then this is not your premises and you have to pay FBT. In summary

  • Leased car parks – Exempt from FBT
  • Licensed car parks – FBT is payable

See IRDs Public Ruling – BR Pub 99/6 for the detail regarding FBT on car parks.

Are the proposed rules fair?

Are the proposal for FBT on all car parks within the Auckland and Wellington CBDs fair? In my opinion, yes and no. FBT on car parks where they are valuable, and clearly part of an employee’s remuneration package seems fair. However, in the real world – there just doesn’t seem to be a practical way to get it right. Making car parks in the Auckland and Wellington CBDs subject to tax is arbitrary and unfair particularly if you are on the wrong side of the road within the boundaries.

Is there a better way? We haven’t come up with one and neither has IRD. Until they have the status quo seems to be the way to go.

Changing your FBT filing date

Changing your FBT filing date

If you or your clients provide fringe benefits to staff or shareholders you must file regular FBT returns. There are set dates when you can change from quarterly filing (the default) to another method.

The three filing options are:

  • quarterly
  • annual
  • income year.

Quarterly returns

Employers are required to file FBT returns quarterly unless they meet the criteria outlined in the Fringe benefit tax guide (IR409) and then elect to file yearly returns.

The return periods and due dates for quarterly returns are outlined here.

Quarter Return period Due date
1 1 April to 30 June 20 July
2 1 July to 30 September 20 October
3 1 October to 31 December 20 January
4 1 January to 31 March 31 May

Annual returns

If you’re a current employer and want to change from quarterly filing, you must make your election by 30 June in the year the election first applies. For example, if you want to file your first annual return for the year ended 31 March 2014, you must make an election by 30 June 2013.

New employers must make their election by the last day of the first quarter after starting to employ. For example, if you started employing on 31 October 2012, you must have made an election by 31 December 2012 to be able to file a first annual return to 31 March 2013.

Income year returns

Existing companies with shareholder-employees can elect to file income year returns by the last day of the first FBT quarter in the income year for which the election applies. For example, a company with a 30 September balance date would have to have elected by 31 December 2012 to file a return for the year ended 30 September 2013.

Companies that are new employers must elect by the last day of the first quarter in which they started employing, within the income year the election applies for. For example, if a company with a 30 June balance date starts employing on 31 July 2013, it must make an election by 30 September 2013.

Section RD 60(2) of the Income Tax Act 2007 sets out the dates by which a close company that meets the requirements of RD 60(1) must make its election if it wants to file its FBT returns on an income year basis.

Section RD 61(2) also sets out the dates by which a small business that meets the requirements of section 61(1) must make its election if it wants to file its FBT returns on an annual basis. Because the dates are set we can’t accept late FBT return elections. Returns received where no election has been made or the election is outside the time allowed will be treated as invalid and your client will be asked to file FBT quarterly returns. This may make them liable for penalties and interest because of different due dates.

You can make your fringe benefit tax election online. This service allows employers to change how often they file FBT returns or elect not to file FBT returns. However, you can’t request to file your FBT returns quarterly using this service, you must call us on 0800 377 772 to do this.

FBT due dates for New Zealand employers

FBT due dates

FBT due dates are the same every tax year regardless of your balance date. Each FBT year is to 31 March and is split into four quarterly FBT returns (FBT return quarters are therefore not calendar year quarters).

You have 20 days to prepare and file FBT returns and pay FBT before the due date in quarters one to three. It is relatively common for people forget that in quarter four you get two months to file and pay your FBT return (force of habit). The longer period is recognition that fourth quarter FBT returns (which involve a true up of FBT rates for the year based on individual tax rates) are complex and time consuming.

Quarterly due dates for returns and payment

Quarter to FBT due dates for returns and payment
Q1 30 June 20 July
Q2 30 September 20 October
Q3 31 December 20 January
Q4 31 March 31 May

If the due date falls on a weekend or public holiday then FBT return filing and payment are due on the next working day. More information regarding return due dates from Inland Revenue.

Don’t leave it until the last minute

Even simple FBT returns for small employers can be complicated and time consuming. You will need time to gather data to value fringe benefits, prepare and review FBT calculations, review and prepare return disclosures. You may also need to seek help from your accountant regarding any changes to the FBT rules or to calculations due to changing income tax or FBT rates.

We recommend you attribute fringe benefits to employees every quarter so that the fourth quarter calculations are more accurate and less time consuming.

The benefits of using FBT software

FBT software enables much faster and more accurate preparation of FBT returns. It helps you stay on top of FBT due dates, which are require a quick turnaround. Contact us today if you would like to find out more.

FBT returns – 1 simple thing you should do every quarter

FBT returns are pretty complicated. We aren’t that surprised at how many incorrectly filed returns we encounter. The result is usually underpaid FBT and GST – but every now and then we come across a pretty decent refund.

FBT returns – where they go wrong

FBT return errors are broadly in two areas. Fringe benefit identification errors and FBT calculation errors. Let’s concentrate on the former.

Fringe benefit identification errors are usually a result of an incomplete FBT return process. This is unsurprising given that FBT returns are annoying and add no real value to business operations. Typically, FBT return processes look like this

  1. Look at last quarters return to see what data to get
  2. Get data for this quarter
  3. Run FBT calculations
  4. File return

If your FBT return process looks something like this then you are missing a critical first step.

FBT return process – the missing step

  • Find out what benefits were provided this quarter.

It won’t necessarily be the same as last quarter so you can’t rely on last quarters return. Yes – most benefits are recurring (health insurance, private use of a motor vehicle, gym memberships etc.) but even those benefits appeared for the first time at some point.

You are probably the only person in your organisation who actually knows anything about FBT. Management, sales and even HR staff are constantly thinking about how to incentivise staff behaviour. But you can’t rely on them to come to you to tell you about anything new – they just won’t be thinking about FBT.

What you can do

Talk to people who are likely to provide and/or authorise fringe benefits. Do this as part of your return process every quarter (they won’t be able to remember anything you leave it to the end of the year.

Consistently document your efforts and put them on your FBT return file (email conversation is fine). Its evidence that you are making an effort to comply with FBT legislation (which is difficult due to its complexity).

Its simple – doesn’t take much time and can severely reduce the risk of filing incorrect FBT returns. And remember, Inland Revenue consider how robust your process is when looking at any errors you have made.