Fringe Benefit Tax (FBT) exemption for charities under threat in New Zealand
A new proposal could see charities effectively losing their current tax advantage of not having to pay Fringe Benefit Tax (FBT).
A tax policy issues paper has been released outlining a number of suggestions for broadening the tax rules around salary and wage packages that include both cash and non-cash benefits. The paper, Recognising salary trade-offs as income, focuses on salary or wages traded off for a non-cash benefit. These non-cash benefits are not taxable under the current rules.
If adopted, this proposal could see charities effectively losing their current tax advantage of not having to pay FBT.
This IRD proposal appears to have eventuated, in part, as consequence of the recent salary packaging tax schemes that have been aggressively marketed in New Zealand (interestingly by an Australian company). The scheme widely promoted to large charities involves providing staff with vouchers for food and fuel and other living expenses. The problem however is that the scheme considerably extends the scope of the FBT exemption. This has obviously, and not too surprisingly, caused the IRD to review this area of tax exemptions.
In our humble opinion, Blind Freddy (or at least Blind Freddy the accountant, lawyer, or senior management person) could see this proposed scheme was too good be true – and we all know what grandma used to say about something that looks too good to be true!
Sadly if the paper’s proposals are accepted the removal of FBT exemption, a tax favour that has been granted to charities, could have far reaching implications! Charities in New Zealand have enjoyed this tax favour from the Government for a while now and some would argue that this tax favour gives them a competitive edge when attracting and remunerating people they would otherwise be unable to recruit from the corporate sector.
Looking at the situation objectively, other than being a direct tax favour granted to charities, there is not a great deal of logic to the current exemption. FBT is designed to stop payroll tax abuse. Charities are subject to payroll tax and hence being subject to FBT also seems logical.
If you are a charity that may be impacted by this proposed change we strongly urge you to read and submit on the paper.
The issues paper can be found at www.taxpolicy.ird.govt.nz . Submissions close on 31 May 2012.
Hi, We are a large charity which operates a business to fund the operation of our School. We have 3 campuses: Epsom, Remuera and Maungatwhiri. All our sites have car parks available to staff, parents and visitors. 1. Will these car parks be caught under new FBT rules? 2. What would the value be?
Hello Lesley, In response to your questions:
Please be aware that the changes are at the discussion document stage only at this point and not confirmed. However our opinion is that change in this area is likely.
As a general rule my understanding is that car parks supplied by the employer are FBT’able. However this would probably depend upon whether there is a market value for these. Accordingly one would need to consider the specific circumstances which would also then tie into the “what value” question.
If you would like us to get one of our taxation specialists to assist you with this and any other potential FBT impacts please let us know. In addition if you have any other accounting or audit assistance needs we would be happy to assist.
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