A key part of attracting new talent to your business is offering a good benefits package.
Not all benefits are financial. As part of your package, you may choose to offer what’s known as ‘fringe benefits’ to your employees.
A well-designed benefits package can help a business attract and retain employees. Alongside salary and wages, employers may offer non-cash benefits such as private use of a company vehicle, subsidised health insurance, gym memberships, low-interest loans or discounted goods and services.
Many—but not all—of these benefits fall within New Zealand’s fringe benefit tax rules.
What are fringe benefits?
A fringe benefit is generally a specified non-cash benefit that an employer provides. Common examples include:
- a motor vehicle made available for private use;
- a low-interest or interest-free employment-related loan;
- free, subsidised or discounted goods and services;
- certain employer contributions to insurance policies, superannuation schemes or employee benefit funds; and
- unclassified benefits such as some gym memberships or gift cards.
Some exclusions may apply, and benefits such as accommodation are generally dealt with under the PAYE rules instead.
What are the implications for employees?
Where a benefit is subject to the ordinary New Zealand FBT regime, the employer generally pays the FBT and the benefit is excluded from the employee’s taxable income.
New Zealand does not have a general rule under which fringe benefits exceeding a threshold are reported as taxable remuneration on an employee income statement. However, certain fringe benefits may be included when calculating student-loan repayment income or family scheme income for Working for Families.
What are the implications for employers?
An employer that provides a taxable fringe benefit is generally responsible for calculating, returning and paying FBT. The calculation depends on the type and taxable value of the benefit, the employer’s chosen FBT calculation method and whether the employee contributes towards the benefit.
The cost of providing the benefit and the associated FBT may be deductible, but this depends on the ordinary income-tax rules and any specific limitations, including the entertainment-expense rules.
GST-registered employers may be entitled to claim input tax under the ordinary GST rules. However, providing a fringe benefit can also create a deemed taxable supply, requiring the employer to account for output GST in its FBT return.
Getting the structure right
The tax outcome can vary materially according to the type of benefit, how it is provided, whether private use is available and whether the employee contributes to its cost. Before introducing or changing a benefits package, employers should consider the FBT, PAYE, income-tax and GST treatment together.
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