03 Jul Benefits and perks?
For many a year, IRD has dedicated very little of its resources towards policing fringe benefit tax. At the coal face, we have only seen it come up as part of an investigation into something else, and often it has been overlooked entirely by IRD.
While this approach has generally suited businesses – particularly for smaller businesses, it looks like this is set to change.
But first, let’s back up a touch. What is FBT and why does it exist? The year was 1985, and New Zealand’s top marginal tax rate was 66% leading employers to looking for ‘creative’ ways to reward and entice staff without having 2/3 of their pay go to tax. So, employers began paying for ‘stuff’ for their higher earning staff. A big category was vehicles – essentially, an employer could offer a lower rate of pay but throw a car in to sweeten the deal. The car gave the employer a tax deduction and prior to FBT, wasn’t subject to tax like income was to an employer. Win/win, but in 1985 the taxman realised he was missing out.
This brought about FBT, which essentially taxed things like cars, health insurance etc at the top marginal tax rate.
Fast forward 30 odd years and dishing out benefits isn’t as much of a deal as it once was – for a range of reasons. However, there still are several benefits – such as vehicles – that are provided to staff, and IRD have come to the conclusion that they are once again missing out.
While the proposed changes haven’t found their way into legislation as of yet, they do look to be imposed with a lot more force, so as these rules are cemented, we will be providing a bit more guidance. We are presently of the view that these changes won’t be viewed favourably by small businesses, and trades-based businesses may need to pay particular attention to the work-related vehicles that they provide based on IRD’s current position. This is a good example: https://www.stuff.co.nz/money/360727050/ird-warns-about-misunderstanding-fringe-benefit-tax
While the rules are far from a done deal, if you are considering upgrading or adding to your company vehicle fleet, please get in touch with us so we can have a close look at how these new rules might affect you.
Paying more tax
Speaking of collecting other taxes, IRD has warned the government that somehow, the Nation’s tax-take will need to increase. Why? Simply put, more old people. Presently New Zealand is heavily reliant on Income Tax and GST to fill the government’s coffers – In the 2024 year, individual income tax was 51% of the tax take, with GST sitting in 2nd place at 25% – collectively over three quarters of the tax revenue of the country. https://www.ird.govt.nz/about-us/publications/annual-corporate-reports/annual-report/annual-report-2024/overview/what-we-do-and-what-weve-achieved-from/tax-revenue-reached-115-4-billion-this-year
We prattled on about this last month: the problem is that as our population ages, there will be less people of a working age paying individual income tax. And while retirees continue to be consumers, they will likely peg back their spending over time.
It could be argued that the government could use its resources more wisely and spend the hard-earned tax-payer dollars more carefully, but history shows us it’s highly unlikely that they will be able to make sufficient savings to offset the increase in old-folks. It is presently forecasted that a quarter of the population will be over the current retirement age by 2060.
This leaves a rather unpalatable choice for current and future politicians. Either: cut superannuation, raise taxes, introduce new taxes or find some other source of income. Governments of all stripes have lacked imagination around increasing revenue and have largely resorted to selling off state assets – this has tended to be short term gain for long term pain!
We’re not sure which way this will go, but it’s a conversation that as a Nation, we need to have. You can read more about it here: https://www.rnz.co.nz/news/business/565340/taxes-will-have-to-increase-to-cope-with-ageing-population-government-spending
What can you be doing about this now? If you’re in your 40’s or below, there’s a good chance that government superannuation will look very different by the time you hit 65. And by ‘different’ we mean you’re less likely to get anything. If you haven’t done so already, start planning for what your retirement should look like. This is a great place to start https://sorted.org.nz/tools/retirement-navigator/
