The May budget announcement introducing the investment boost incentive has sparked a surge in vehicle and machinery purchases among farmers and small business owners. The Inland Revenue Department (IRD) also released a proposal in April 2025 to reform Fringe Benefit Tax (FBT) — particularly around vehicles. So, what do farmers and businesses considering new purchases need to be aware of?
The Investment Boost Incentive
This investment boost essentially accelerates depreciation claims on new assets. It is a timing benefit rather than a permanent tax saving. While it’s generating excitement, it’s important to understand that over the life of an asset, the total tax deductions remain the same – only the timing changes. As a result of the incentive, many businesses and farmers are now considering purchasing a new ute.
Fringe Benefit Tax (FBT) and Utes
FBT applies to non-cash benefits provided to employees or business owners, such as the use of a company-owned vehicle.
There’s a common misconception that all utes are exempt from FBT because they’re considered work vehicles. Under current rules, a vehicle must meet specific criteria to qualify for a work vehicle exemption. The vehicle must:
- Be signwritten with the business name,
- Have private use explicitly prohibited (except commuting), and
- Not be classified as a car.
It is likely that many utes don’t strictly comply with the rules as they stand, meaning they may already be subject to FBT if there is any private use at all.
Proposed Changes to FBT
The current FBT system is also based on a vehicle’s availability for personal use, not actual usage. It doesn’t distinguish between minor and significant personal use. The proposed changes aim to make the system fairer and more transparent. Key proposals include:
- Increasing the deemed value of a vehicle benefit from 20% to up to 26% of the vehicle’s cost. For example, a $50,000 vehicle would have a deemed benefit of $13,000 per year, up from $10,000.
- Allowing the fringe benefit value for FBT purposes to be discounted based on the level of genuine business use:
- 100% discount for vehicles used solely for business
- 65% discount for predominantly business use
- No discount for unrestricted personal use
- Excluding small businesses from applying these discounts on vehicles costing over $80,000.
It’s this last point that raises concerns. It could result in unfair outcomes where small business owners face full FBT liability on high-cost genuine work vehicles, while larger businesses with identical vehicles benefit from discounts. This adds to the already significant regulatory burden faced by small businesses.
Our View
Overall, we see merit in IRD’s efforts to simplify the FBT regime. Vehicles used predominantly for work will attract less FBT while those with more personal use will pay more, creating a more balanced system. However, the $80,000 cap for small businesses feels arbitrary and risks penalising small business owners with genuine predominantly work-related vehicles. We hope the submission process will address these concerns before the proposals become law.
As always, the devil is in the detail. Business owners should seek professional advice before making vehicle purchases to avoid unexpected tax consequences.
