Article

New FBT option to save some compliance costs

Tax Alert - April 2022

By Robyn Walker & Sam Hornbrook

When the top personal tax rate was increased to 39% from 1 April 2021, this had the corresponding impact of changing FBT rates – being to change the top FBT rate from 49.25% to 63.93% and to increase the tax pooling rate from 42.86% to 49.25%. Essentially that change has ensured that almost all employers are going to have an increase in FBT costs regardless of whether there are any employees earning over $180,000. We have explained these rate changes in a previous article. For employers who had been satisfied with paying FBT on all fringe benefits at 49.25% because it was simple and approximated the marginal tax rate (33%) of most employees, the 63.93% change was unwelcome as it represented either a significant increase in FBT or a significant increase in compliance costs to attribute benefits to employees. 

The Taxation (Annual Rates for 2021-22, GST and Remedial Matters)
Bill included a change to allow taxpayers to pay FBT at a flat rate of 49.25%
for employees with an all-inclusive pay of less than $129,681 (equivalent to
$180,000 after tax). As we explained in our previous
article
, that was a step in the right direction but ultimately didn’t
provide many compliance costs savings for employers as it was necessary to
attribute benefits to employees in order to prove the rate could be used. 

Thanks to a submission to the Finance and Expenditure Committee by Deloitte, there is now another option. Employers now can pay FBT at a flat rate of 49.25% for any employees earning gross “cash pay” of $160,000 or less provided that total attributable fringe benefits are $13,400 or less. It would be very rare for an employee to receive benefits near this $13,400 threshold so it allows employers to make a reasonable assumption about benefit levels in order to access the 49.25% rate for all employees earning $160,000 or less. For many employers this will mean only benefits provided to a few employees need to be determined with accuracy, with FBT paid at 63.93% only in relation to those benefits. There remains the option to pay FBT at 49.25% for employees earning between $160,000 and $180,000 if all-inclusive pay remains below $129,681.

With all its available options, it can be easy to get confused about the best approach to calculating FBT. In the table below we set out the options and some pro’s and con’s of each. We recommend that now is a good time for employers to consider having an external review of FBT, we have a range of cost-effective review options which we would be happy to talk through. Having an external review of taxes, like FBT, is positively viewed by Inland Revenue as it demonstrates tax governance is being taken seriously.

Option

 

Pro’s

 

Con’s

 

Pay at single rate

 

 

It’s simple, nothing has changed except the rate

 

It’s expensive, the single rate is 63.93%

 

 

Short-form attribution

 

 

 

 

 

Non-attributed benefits will be taxed at 49.25% (rather than 63.93%)

 

 

 

 

  • Benefits need to be allocated between attributed or non-attributed
  • All attributed benefits will be taxed at 63.93% (even for staff earning less than $160,000)

 

 

Concessionary short-form rate:

  • 63.93% for employees earning over $160,000
  • 49.25% for employees earning $160,000 or less with benefits under $13,400

 

 

  • Non-attributed benefits taxed at 49.25%
  • Attributed benefits also taxed at 49.25% if no one earns above $160,000

 

 

 

 

 

  • Benefits need to be allocated between attributed or non-attributed
  • You will need to collect information about benefits provided to employees earning more than $160,000*

* if the benefits provided to someone earning above $160,000 are insufficient for total remuneration to exceed $180,000 there is still an opportunity to pay FBT at 49.25%

 

Full attribution

 

 

 

 

 

 

  • You will save FBT (attributed benefits are taxed at the marginal tax rate)
  • Software can help you

 

 

  • Benefits need to be allocated between attributed or non-attributed
  • It’s more complicated and relies on you having adequate information to attribute benefits to employees

 

 

 

For more information, contact your usual Deloitte advisor.

 

April 2022 - Tax Alerts

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