Some existing Fringe Benefit Tax (FBT) exemptions are coming
under the IRD's spotlight.
An official's issues paper calledRecognising salary trade-offs
as incomewas issued recently by the Policy Advice Division of the
The proposals contained in the paper will have a significant
effect on the current treatment of car parks and on-premises
childcare facilities that employers provide to their employees, as
well as fringe benefits provided to employees of
The objective of the proposed changes is to ensure that income
from personal labour is fully taxed, and is taken into account when
determining eligibility for social assistance such as working for
families, and the parental income test for student allowances.
Based on that principle, the IRD want salary and salary
substitutes to be taxed equally to eliminate any tax benefit from
alternative structures. Situations where there is a salary
trade-off of cash in return for obtaining a benefit, whether the
cash alternative is explicit or implied will, under the proposals,
result in the value of the benefit being taxed.
For car parks, under current rules, there is an on-premises
exemption from FBT. If a car park is on the employer's
premises or is leased then this will be exempt from FBT in most
cases, whereas if the car park is licensed it will usually be
subject to FBT. Under these new proposals, the exclusion from
FBT for car parks provided on work premises would be
removed Instead, liability for FBT would be determined
by whether the car park was provided as a trade-off with
The key question then becomes: what is a "salary
trade-off"? The paper sets out three possible situations:
- Where an amount of salary or wages is traded for a non-cash
- Where an amount of any other employment-related income is
traded for a non-cash benefit; or
- Where there is no explicit trade-off but where the employee has
anenforceable rightto the benefit, the benefit is actually
available, and the employee takes up that benefit. This is
called an implicit trade-off.
The first two situations seem clear but the third, the implicit
trade-off, is not. An enforceable right is usually
established by reference to an employment agreement. However,
an example given in the paper says an implicit trade-off arises in
the situation where unallocated basement parking is available to a
group of managers for use at any time and each manager is
guaranteed a parking space. There is no reference to whether
the employment contract covers the car parks, or whether an amount
of salary is foregone for the use of the car parks. To the
IRD, the guaranteed availability of the parking space creates an
enforceable right, and therefore there is an implicit trade off if
the employee then uses the car park. This situation could
potentially affect many employers who rely on the on-premises
Those employees will then be faced with the challenge of how to
value the "trade-off". Inland Revenue say they may consider a
standard value for benefits in some cases to simplify
Childcare provided on employers' premises, which is presently
exempt from FBT, would also be taxable when part of a salary
trade-off. Other examples of salary trade-offs are also
mentioned in the paper, including the benefits to employees
participating in a group life insurance policy, when this is
part of a salary trade-off.
Fringe benefits provided to certain employees of charities are
currently exempt from FBT in most cases. This FBT exemption is
already limited in the case of charge cards or in the case of
charities that are carrying on a business. The FBT exemption
for charities is to be amended to specify that any vouchers
provided to employees of charities will be subject to FBT.
This is because vouchers are easily substituted for salaries.
Other fringe benefit provided to the employees of charities could
also be subject to FBT if they are part of a salary trade-off, as
set out above.
The issues paper discusses whether it is preferable to tax all
salary trade-offs grossed up through the PAYE system, which then
automatically brings it into the social assistance
calculation. If this approach is followed this would require
changes to remove some benefits from the FBT system.
Alternatively, the FBT rules could be amended to subject to FBT
benefits which are currently exempt.
The changes, once finalised, are expected to be introduced with
effect from 1 April 2014.
The IRD is requesting the views of both employers and employees
to the document. Please let your usual Staples Rodway advisor
know if there are any points on which you would like to make a
submission. Submissions are due by 31 May 2012.