FBT “re-imagined”?

Inland Revenue today (1 April 2025) released an issues paper canvassing a range of options for updating and simplifying New Zealand’s Fringe Benefit Tax (“FBT”) rules. This follows a 2022 regulatory stewardship review of the FBT system, which raised concerns around its scope and complexity.    

The issues paper is available here and Inland Revenue’s August 2022 report on the findings of its regulatory stewardship review is available here.

The key areas targeted for reform and the options being consulted on are summarised below:  

The proposals include:

• Increasing the weight limit for vehicles subject to FBT from 3,500 kg to 4,500 kg.
• Exempting vehicles used for providing emergency services operated by Police, Fire and Emergency and ambulance services.
• Removing tax book value as an option for valuing a motor vehicle.
• Calculating the value of a motor vehicle with reference to external sources (e.g. such as Automobile Association data) with values re-calculated every four years.

A new valuation basis for FBT

A new valuation basis depending on fuel type is proposed for calculating the FBT-able value of a motor vehicle (based on the cost price).  

The requirement to count the days a vehicle is not available for private use (by maintaining a logbook) would be removed and this would instead be accounted for in the four-year re-calculation period for the vehicle’s value.

New rates for calculating taxable value

A new way of calculating taxable value based on how the vehicle is used (rather than the type of vehicle) is proposed:  

A new concept of “incidental travel” is also proposed to ensure one-off non-remunerative use of a vehicle is ignored for FBT purposes. The suggested criteria is travel that is: unusual, of short duration, ad hoc / irregular and for a limited purpose.

Importantly, as a result of the new approach to calculating taxable value, the current work-related vehicle exemption is proposed to be removed.

Other:

• Category 2 or 3 would be limited to motor vehicles costing less than $80,000 where the employee is a major shareholder of a close company.
• Inland Revenue would have the discretion to exempt certain motor vehicles in categories 2 and 3 from having to display the employer’s signage.

The proposal is to change the way unclassified benefits are subject to FBT, by either:

• Excluding benefits that are less than $200 in value and not in lieu of remuneration; or
• Listing the benefits that are exempt in a schedule.

(The $200 per benefit cap option would replace the current de minimis exemption. The “on premises” FBT exemption would still be retained for unclassified benefits.)

Other proposals include deeming employer arranged points schemes to be unclassified benefits in lieu of remuneration, with the value of the benefit being the cash value of the points that are accrued. 

The proposal is to bring entertainment expenses into the FBT regime and remove the 50% limitation on deductibility of such expenses.  

In addition, it is proposed that either:

• The unclassified benefits de minimis threshold would apply to entertainment benefits; or
• Food and beverages (other than those consumed at a party or other social occasion/celebration) would be exempt from FBT. 

There are a range of other proposals, including:

• Changing the value of subsidised transport benefits from the highest fare to the average fare for the month of travel.
• Deeming benefits provided to an employee that have no cost to the employer to be provided at their market value.
• Deeming so-called “stored value” cards to be subject to FBT and not PAYE.
• Mandating a calculation approach for FBT on global insurance policies.

The proposals include:

• Allowing employers to pay FBT in each of the first three quarters based on 25% of the previous year’s FBT liability (i.e. 75% of the prior year liability payable over the three quarters), with a full “square-up” to the actual liability performed in the fourth quarter.
• Requiring FBT returns to include a breakdown into categories, and sub-categories, of fringe benefits.
• Allowing FBT returns to be filed directly through software.
• Requiring an income tax return declaration that if an employer has claimed motor vehicle expenses that they have they have also complied with any FBT obligations.

• There is a lot of content to work through (the issues paper is over 70 pages in length) and a relatively tight window for feedback, which is requested by 5 May 2025. No doubt this is to enable decisions to be made on which FBT proposals should be included in a Tax Bill later this year.
• The FBT proposals have been prepared with a view to ensuring broad fiscal neutrality. The issues paper notes that proposals which have fiscal costs (such as a new de minimis for unclassified benefits) may not proceed, or may be delayed, depending on the status of revenue raising measures (such as increasing the FBT valuation rate for motor vehicles and moving entertainment expenses into the FBT regime).
• The proposed FBT category system for vehicles, based on type of use, is intended to simplify the current rules and improve compliance. In particular, the issues paper notes that there appears to be misconceptions about “work-related vehicles” (aka the ‘double cab ute exemption’) having full FBT exempt status and suggests removing this distinction.
• Category 2 would allow home to work travel to be taxed at 35% of the FBT-able value of the vehicle. However, this would not be available if the vehicle is used during evenings or weekends, for example, other than if such use is incidental. So, while providing some flexibility, it will not necessarily deal with all private use cases. For example, with the proposed removal of the work-related vehicle distinction, it is not clear what this would mean for calculating and paying FBT on the actual private use component of such vehicles. Will these now need to be treated as category 1 vehicles with 100% of the FBT-able value subject to tax? Therefore, there will still be complexity for employers to navigate as well as potential “unders” and “overs” to manage.
• Two options are put forward to simplify the rules for unclassified benefits – excluding benefits valued at less than $200 (if not linked to remuneration), or a scheduler approach to listing excluded benefits. However, there is still likely to be some complexity. For example, the issues paper notes that under the $200 cap, “connected benefits” would need to be cumulated for threshold purposes. Examples are provided which suggest that while an employee Christmas gift or one-off gift card (if less than $200) would qualify, a $20 per week gym membership would not due to its recurrent nature and potentially being in substitution for remuneration. 
• Moving entertainment into the FBT regime may increase the tax cost to employers (particularly for those businesses with tax losses), unless the de minimis applies to exclude entertainment benefits. There may also be some additional compliance costs, particularly if employers now become subject to FBT. This will be a major change that will need to be managed and resourced.
• Important changes are also proposed to compliance requirements, in particular to provide more information in the FBT return on the types of benefits being provided, but also to force taxpayers to think about the FBT position when claiming motor vehicle expenses. This is likely to be a red flag for Inland Revenue’s enforcement activity.