Do you know what FBT is and how it applies to your firm?
Fringe Benefit Tax (FBT) is a tax on benefits that employees receive as a result of their employment, including those benefits provided through someone other than an employer.
As a general rule, as long as you have a vehicle available for an employee to use privately, you will have to pay FBT whether or not your employee actually uses the vehicle privately. But there are certain exemptions from FBT – general and daily.
To meet the requirements for fringe benefit tax on motor vehicles, or claim a general exemption or daily exemption on them, you must keep adequate records. Karen Tobeck explains what records you need to keep:
- general records for any vehicle in relation to Fringe Benefit Tax (including those for which you are claiming an exemption)
- records for any vehicle available for private use
- records for work-related vehicles (where you are claiming a full or partial general exemption)
- records for vehicles stored on the employer’s premises
- records for vehicles for which you are claiming daily exemptions
- documentation to support a start time other than midnight for the commencement of the 24 hour period.
Vehicles available for private use
If you provide a vehicle that is available for private use (which is subject to Fringe Benefit Tax), your records must:
- identify the motor vehicle available for private use
- support the market value or cost price that you are using for its taxable value
- include working papers, where you are claiming daily exemptions, showing how the liable days are calculated for each quarter, with supporting documentation for any exempt days
- include copies of any restriction on private use (usually a letter or notice)
- include working papers showing how the total of any employee contributions was calculated for each quarter, with supporting documentation.
To claim a full or partial exemption for work-related vehicles, you must keep:
a description of the vehicle to show it meets all 4 conditions to qualify as a work-related vehicle
a copy of the letter or notice informing employees that private use is restricted to the terms required for a full exemption (condition 3), or to the days required for a partial exemption
records of the quarterly checks conducted to ensure that the employee is using the vehicle for authorised use only.
Vehicles stored on the employer’s premises
To claim the exemption for vehicles stored on the employer’s premises, you must keep a copy of the written communication (usually a letter or notice) to employees in which you inform them of the restriction.
If you are claiming any daily exemptions, you must keep adequate records to support your claim.One possible approach is to record every exemption for which a vehicle qualifies over its whole life. An easier alternative is to run a three-month test period to establish appropriate records, as follows.
- Schedule your test periods based on the type of FBT return you file.
- Keep full records for three months, recording every daily exemption for which a vehicle qualifies during that time.
- Calculate the number of exempt days for the quarter, taking into account the number of days in the quarter you use for the test period
- Use the result to calculate your fringe benefit tax on that vehicle for a three-year application period.
- After three years, run another three-month test period.
Are you confident that your business is keeping good records for FBT? Ask Karen Tobeck a question about FBT or get our team to check your records and advise how you can improve record-keeping so that you are covered if the IRD does an inspection.