Fringe Benefit Tax (FBT) and Motor Vehicles

The IRD have been looking into the area of FBT and motor vehicles for the last couple of years so the takeaway message is that there may be increased audit activity in this area.  

We think it is worth looking at a recap of the rules and thinking about your own business situation and how this relates to you.

The first thing to note is that these rules only apply to corporate relationships, i.e. do not apply to sole traders and partnerships.

Where a motor vehicle is provided by an employer to an employee (e.g. a family company provides a director or an employee with a car) for private use then a fringe benefit is deemed to have been provided to the employee and therefore an annual tax charge of 20% is made on the cost price of the vehicle which is journalled into the company’s financial statements as sundry income.  For these purposes home-to-workplace travel is deemed to be private use.

If, however, the vehicle always stays on business premises overnight and is accessible for all employees during the day then no FBT calculation is required.

Any vehicle that is deemed to be a work vehicle, e.g. sign written Utes and vans used for business, are generally not subject to FBT.  Cars are very rarely classed as work vehicles.

However, a reduction in the FBT calculations can be made for days when the vehicle is used exclusively for business.  So it is important to keep track of, and notify us at the year end, of any days when the vehicle is not available for private use as this will reduce your taxable income adjustment – e.g. the vehicle is at the garage for 2 weeks for repairs, another employee has it for business reasons, the vehicle is being used away on a business trip for over 24 hours, or the employee is on holiday and hasn’t used that vehicle to go on holiday or to travel to the airport etc.

If you have questions about the application of FBT for your work vehicle or fleet, please get in touch with us – we can help.