Generosity to your employees certainly goes a long way to building loyalty, morale and a sense of belonging, however, it does not always go unchecked by IRD. ‘Fringe benefits’ is the term in New Zealand we give to non-cash benefits provided to an employee by their employer, and there is a necessary tax to pay on these benefits because the employee is gaining a benefit without the need to pay tax on it through the PAYE system.
There are four main categories of Fringe Benefit Tax (FBT) but company vehicles are where most people get tripped up. If an employee is given the use of a work vehicle which they are allowed to use privately, it negates the need for them to purchase/ pay the running costs of their own vehicle. They would normally have to pay for it using their own money, which has already been taxed when earned. This means the tax is still obtained by IRD through FBT. It basically levels the playing field where all benefits, no matter their type, are taxed as if they were earned as wages.
A common exception is work related vehicles. Work related vehicles are exempt from FBT if they meet the requirements laid out by the IRD. Generally, they must weigh less than 3,500kg, their principal design is not for carrying passengers, with business branding displayed permanently on the vehicle and the employer must notify employees that the vehicle is available only between home and work. A very common example of this is a would be a builder who has the use of a ute, van or truck.
Other exemptions are for subsidised or discounted goods and services. You can still be generous to your staff without being taxed for it. A company is exempt from paying FBT on benefits to their staff up to $300 in value per person per quarter when filing quarterly and $1200 per year when filing annually (the maximum across the company is $22,500 per year). So, that cake or birthday present the company paid for is certainly non-taxable, and cake is always welcome! Other exemptions include clothing, car parks (whether leased or owned) and membership rewards programs for personal use.
