Tag Archives: FBT Returns

Articles about New Zealand FBT returns. Including practical issues such as due dates and how to amend returns, and technical FBT articles.

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.

FBT guide updated by Inland Revenue (IR409 December 2010)

Inland Revenue have released an update to the FBT guide. The update covers the FBT rate changes from the 2010 Budget. These changes were needed due to the extensive impact oft the changes on FBT rates in 2011, 2012 and future years.

FBT guide update in short

Income tax and GST rate changes came into effect on 1 October 2010. This has a major impact on FBT rates, thresholds and calculations.

FBT rates for 2011 are complicated. Blended income tax rates are needed for 2011 due to the mid year headline rate changes. As such FBT rates for attribution are also blended with a shift in thresholds. Quarterly FBT rates for the 2011 FBT year are split between pre and post 1 October 2010 meaning the 2011 Q3 rate is a stand alone rate.

FBT rates for 2012 (and following years) are back to normal (i.e. not blended rates), but are based on the new income tax rates. Rate thresholds have changed in each year just to complicate things.

We have outlined below some of the changes to the FBT guide (IR409). We were hoping for a broader update of the guide at the same time as some of the explanations can be a little confusing. In particular, FBT on pooled motor vehicles, which seems only to cover what happens in quarters one to three, doesn’t seem to strictly follow how the legislation works.

FBT guide updated for the new FBT rates

  • 2010 FBT alternate rates  (found on page 3 of the FBT guide)
  • 2011 FBT alternate rates (found on page 43 of the FBT guide – buried at the back)
  • 2012 FBT alternate rates (found on page 3 of the FBT guide)

The FBT guide is only guidance

While the FBT guide is useful (although a little confusing at times) the legislation is actually a better source of guidance. Firstly  its the law. Secondly, its actually pretty easy to read and understanding it will help you prepare and review returns and discuss issues with your tax adviser and Inland Revenue.

FBT on work related vehicles

Can a double cab ute qualify for the work related vehicle exemption from FBT. We were asked this question recently at a TaxLab FBT training course.

The answer is yes, it can qualify. However, just because the vehicle is a double cab ute doesn’t mean you automatically get the exemption.

Work related vehicle FBT exemption

A work related vehicle creates a fringe benefit on any day that it is available for private use (the same as when other vehicles are available for private use). However, travel between home and a business premises (and incidental use) is legislatively excluded from being private use, provided that

  • the travel is in a work related vehicle; and
  • the travel is necessary and is a condition of their employment.

What’s a work related vehicle

Four tests must all be met for a vehicle to be a work related vehicle

  1. The vehicle must not be a car (Inland Revenue’s view is that to meet this test “the principal design of the vehicle cannot be for carrying passengers”); and
  2. The exterior of the vehicle must permanently and prominently display the name of the employer, or the business logo, acronym or other identification; and
  3. The employer, must have notified the employee in writing that the vehicle is available only for travel between home and work (or travel incidental to business travel); and
  4. The employer conducts and records checks to ensure that employees are actually following this restriction in real life.

Common errors

The exemption is very narrow. Most overlooked is that the exemption only covers exclusive driving between home and a business premises. If the employee uses a work related vehicle even once for private use (e.g. driving from home to the supermarket and back again) then the Inland Revenue will consider that the vehicle is always available for private use.

Also commonly overlooked is that the travel must be necessary and a condition of employment (a written condition in the opinion of Inland Revenue).

Partial exemption for weekend use

Inland Revenue does allow a partial exemption, essentially allowing employees to use a work related vehicle on weekends and public holidays only. The work related vehicle

  • must not be available for private use for most of the week; and
  • can only be available for private use on certain days (for example, weekends and statutory holidays). These days would attract FBT.

Electing to file annual FBT returns

Annual FBT returns (IR 422) – Small business option

Annual FBT returns (IR422) can be filed instead of quarterly FBT returns, if you meet one of the following criteria, and you make an election before the due date:

  • Gross tax and ESCT for the previous year is $500,000 or less; or
  • You were not an employer in the previous year.

If you make an election, you must send it to Inland Revenue by the due date. If they do not receive it by the due date, then you will need to file quarterly returns for the year. Refer to the Income Tax Act 2007, RD 61 Small business option for more details.

Type Election Deadline
Existing employer 30 June in the relevant tax year.
New Employer The last day of the quarter in which the employer first starts employing employees.

Income year FBT returns (IR421) – Close company option

Income year FBT returns are different to annual FBT returns. It is based on a non-standard balance date. You can elect to use the Fringe benefit shareholder/employee tax income year tax return (IR421) if:

  • your company has shareholder-employees only, and your annual gross tax and ESCT are less than $500,000, or
  • you are a closely held company and you only provide motor vehicles for private use to shareholder-employees and that benefit is limited to 2 vehicles.

This return covers the accounting year of your company. You should file it by the due date for paying end-of-year income tax. Refer to the Income Tax Act 2007, RD 60 Small business option for more details.

Existing employer 30 June in the relevant tax year.
New Employer The last day of the quarter in which the employer first starts employing employees.

Use FBT Software to file annual FBT returns

You should consider using FBT software to prepare returns, including annual FBT returns and income year FBT returns. It is the fastest, most efficient way of completing even small returns and is accurate and fully documents the attribution calculations. Contact us today to find out more.

FBT returns | 5 ways to minimise tax

FBT returns can be time consuming and stressful. However, by utilising the legislation to its fullest you can minimise your FBT cash liability every quarter. Using some basic FBT rules to your advantage and approaching FBT compliance in a different way will benefit you. There are large savings to be made. Here are 5 ways you can pay less.

Alternate rate option

Reduce FBT by using the alternate rate option. Many employers avoid it due to its complexity. Yes, its complicated but in our experience the cash savings of attributing fringe benefits to employees is generally worth it.

De-minimis exemption

Actively structure unclassified benefits within the $300 per quarter de-minimus exemption to reduce FBT. This is often an afterthought, use it to your advantage.

Optimise pooling

Optimise pooling to reduce FBT by selecting the most efficient FBT option for each category (you can pay FBT using attribution or the pooling rate). In general, use the pooling rate where the majority of benefits in a category are provided to highly paid employees, attribute when not.

Speak to a FBT specialist about your FBT returns

FBT specialists can reduce your fringe benefit profile. Yes we know they are expensive but they know what they are doing and understand the legislation, which goes much deeper than the FBT guide. The fringe benefit rules are complicated and opportunities are often overlooked by businesses because the detail of return compliance often gets in the way of smart thinking. We recently set up a client in our software and discovered they had been overpaying thousands of dollars of FBT every quarter for the last 8 years. A simple conversation with their tax advisor would picked up the issue.

Reduce compliance costs

Spend less time preparing calculations and returns to reduce compliance costs. OK, not strictly a tax saving but a compliance cost saving but its a cost all the same. We have helped people reduce time spent from days to hours by introducing purpose built FBT software, robust process and efficient sense checking.