Car FBT exemption floated
It’s the tax exemption blamed for New Zealand’s extraordinarily high uptake of polluting double cab utes, but instead of closing the loophole the Government looked at extending it to all vehicles for the period of the Covid-19 lockdown – at a cost of $36 million.
Papers obtained by Stuff under the Official Information Act show tax officials drew up plans to exempt all motor vehicles from paying Fringe Benefit Tax whenever the country was in a level 4 lockdown, costing roughly $36m.
Fringe benefit tax or FBT is used to make sure that companies pay tax on benefits they give to their employees. It’s designed to make sure that companies and employees don’t use generous work perks as a way of getting around paying tax on ordinary income.
The most common type of work perk is being allowed to use a company car in personal time.
Whenever the car is being used for a personal rather than work-related purpose, the owner should be paying tax.
However, double cab utes are largely exempt from the tax as most fit into an exemption for vehicles that aren’t primarily used for carrying people – an exemption essentially designed so that tradies weren’t pinged by complex FBT charges. Of course, it’s encouraged a whole lot of companies to buy utes to avoid paying the charge.
Officials looked at temporarily exempting all company cars from the tax because employees wouldn’t be getting much, if any, personal use out of a company car during a level 4 lockdown, yet businesses were still obliged to pay tax on them. IRD officials said that temporarily slashing the tax ‘‘would provide a cashflow boost to affected businesses to support their ongoing operation without compromising the principles underlying FBT’’.
Officials said that continuing to charge businesses for enjoying work perks they actually weren’t supposed to be using during level 4 ‘‘could be perceived as contrary to this Government objective’’.
Deloitte tax partner Robyn Walker was one of the tax specialists who asked IRD to make a ruling on the issue.
‘‘You pay FBT if a motor vehicle is available to an employee so the question is, ‘is that motor vehicle made available if the employee can only go to the supermarket?’’’ Walker said. ‘‘They came to the conclusion that under the existing law there was no ability for them to say the vehicle wasn’t available,’’ she said.
The Government stood to gain from increased FBT take during level 4 as many companies encouraged staff to take their work cars home to keep them safe during the lockdown. Taking the cars home would mean they would be subject to the tax.
‘‘In the absence of the recommended exemption this change in behaviour would provide the Government with additional FBT windfall gain,’’ said advice from IRD.
Some rough sums worked up by officials calculated IRD collected $144m in FBT a quarter for perks given to 20,000 employees – 70 per cent of that total number was related to motor vehicles.
They said that exempting cars for the period of the first lockdown would be about $36.3m.