Benefits: Are you ready to file your final FBT return?
About the Authors:
Christel Townley
Associate Director at Deloitte
Christel Townley is an Associate Director in the Auckland Tax team of Deloitte Tax & Private, helping clients manage their employment taxes.
Blake Hawes
Consultant at Deloitte
Blake Hawes is a Consultant in the Wellington Tax Team of Deloitte Tax & Private, providing corporate, personal and indirect tax services to a range of clients.
As we have crossed the line of 31 March for another year inevitably the topic of tax enters our minds and equally as important, so does Fringe Benefit Tax (FBT). The 2018 fourth quarter Fringe Benefit Tax return or Annual Fringe Benefit Tax return for the year ended 31 March 2018 is due by 31 May 2018, so the time is nigh to turn our attention to the usual trip-ups in the FBT rules and any changes in these that have come up in the last year.
AUDITS AND REVIEWS: ALL THE MORE REASON TO GET IT RIGHT
Inland Revenue has indicated that they are increasing their focus on indirect taxes, specifically FBT, and we have seen them undertaking more audits in this area to find common FBT errors, particularly in SMEs. Over the course of the last year changes have been made to legislation and further interpretation statements have been issued around current legislation that will affect almost all entities preparing FBT returns.
FBT OR PAYE?
Recently we have found a number of instances where employers have not correctly understood whether parts of an employee’s compensation should be taxed through payroll, or should be subject to FBT. The general rule is that if the employer has the contractual obligation to pay the benefit then FBT applies, whereas if the employee has the contractual obligation to pay for the benefit (and the employer pays it) this should be taxed through payroll.
Examples of this included reimbursing employees for the cost of a health and wellbeing benefit or home telephone where there is a private benefit to the employee. In both of these examples, clients thought these benefits were subject to FBT but exempt under the de minimis threshold. However, they should have been subject to PAYE due to a private benefit arising, as the contractual obligation for these expenses was with the employee. Now would be a good time to evaluate how you provide benefits to your employees and whether they are actually fringe benefits or required to be taxed through payroll.
LIFE INSURANCE
From 1 April 2017 the FBT treatment of life insurance premiums was standardised to ensure that they are all treated as ‘specified insurance premiums”. Such premiums are explicitly included as a fringe benefit, so must be included in any employer’s FBT return if they are paying life insurance policies for their employees.
This removes any ambiguity around whether certain life insurance policies are held not for the benefit of the employee but instead for the benefit of third parties and/or the employer themselves, in which case historically they might not have been subject to FBT.
MOTOR VEHICLES
As motor vehicles are the most commonly provided fringe benefit, Inland Revenue is increasingly focusing its attention on this area. Inland Revenue released an Interpretation Statement (IS 17/07) in August 2017 regarding the FBT treatment of motor vehicles, aiming to clarify and consolidate the Inland Revenue’s operational positions in a number of areas. With this in mind, we would recommend the below issues are considered leading up to the 31 May deadline:
Work-related Vehicles – First and foremost it is important to note that just because the vehicle displays the company’s logo does not mean it automatically fits into the definition of a “work-related vehicle”. There are important restrictions on what a work-related vehicle actually is, and it is very easy to fall out of those limits, for example if employees can use it for private purposes.
Taking the car home – It is commonly thought that if an employee takes a car from work to home that no private use of the car has arisen, but this will very rarely be the case, and the onus is on the employer to show that the car is not available for private use.
Business travel and the airport carpark – There are reasonably strict rules around whether a car that has been left at the airport while an employee is on business travel is still “available for private use”, and subject to FBT. Fortunately some common sense has prevailed and Inland Revenue has confirmed a vehicle is not available for private use if the employee has been required to take a flight away from home for business reasons. However, care still needs to be taken to correctly count the days it is available for private use as there are some subtle differences to when they are travelling on business with the vehicle.
Evidence for FBT returns – The onus of proof for FBT self-assessments falls entirely with the employer. Inland Revenue’s FBT Guide contains further detail regarding the evidence required, however, the following list is a good starting place;
Knowing the motor vehicle (make, model, year of manufacture & registration number)
Support for the tax value (fixed asset register) or cost (receipt or lease documentation) of each vehicle
Documentation of all exempt days from private use
Copies of private use restrictions if in place
Workpapers evidencing the calculations of the fringe benefit value obtained including any amounts contributed by the employee.
If you have any questions about the detail of these rules, consult your tax adviser.
THE RELATIONSHIP BETWEEN FBT AND THE ENTERTAINMENT EXPENDITURE RULES
There can be some confusion over whether the entertainment rules or the FBT rules apply when the entertainment is provided to employees.
The simple answer is that in the first instance the entertainment rules override the FBT rules. Therefore if you have entertainment expenditure that is caught by the specific entertainment provisions, no fringe benefit is deemed to arise on this entertainment regardless of whether employees are present or not. There are some exceptions to this if the employee can choose when to receive or use the benefit, or if the employee doesn’t receive the benefit in the course of, or as a consequence of, their employment.
Some other important things to remember
Applying the de-minimis exemption for unclassified benefits:
If unclassified benefits fall below a threshold ($300 per quarter per employee or $22,500 per employer over the last four quarters for all employees) no FBT is payable on those benefits. This exemption threshold includes all associated entities and is a rolling quarterly calculation.
Washing up errors in Quarter 4:
Despite the temptation to correct prior quarter errors in a “wash-up” calculation in the final quarter FBT return, this can only be done in a later quarter where the total adjustment to the FBT return does not exceed $1,000. Anything above this threshold should be corrected through a voluntary disclosure.
Annual filing threshold:
If you want to file your FBT return annually (if your total gross PAYE and ESCT contributions for the previous year were less than $1,000,000) you need to file an election with Inland Revenue by 30 June for the year you want to change to annual filing (or the end of the first quarter that fringe benefits arise). If an election has not been made yet for 2018, even a small employer will still be required to prepare quarterly returns.
To attribute or not, that is the question: Employers who choose to pay FBT at the standard rate of 49.25% per quarter rather than the multi-rate of 43% can still switch to a full year attribution calculation based on FBT rates linked to the total value of cash remuneration and fringe benefits per employer in the final quarter. This can save material amounts of tax, so is well worth considering.
Is it GST on FBT or FBT on GST?
Don’t forget to include a GST adjustment on your FBT return if the benefit is subject to GST.
Note this doesn’t then go on your GST return.
CONCLUSION
If you require assistance with your final quarter or annual FBT calculations or wish to explore the benefits of an FBT health check further, it is well worthwhile consulting a tax adviser.
BENEFITS PROVIDED TO AN ASSOCIATED PERSON
A fringe benefit is a non-cash benefit provided to an employee or an associate of an employee.
For FBT purposes an associated person is someone associated with the employer or the employee by:
• blood relationship within two degrees to the person or that person's spouse, civil union partner, or de facto partner. For example, one degree is your parent or child, and two degrees is your grandparent, grandchild or sibling.
• marriage, civil union or de facto relationship
• business partnership, or
• shareholding interest.
The association rules are complex, therefore it's important you seek professional advice if you think there's any possibility of an association applying to you.
www.ird.govt.nz
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