Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


“Stark Choice” On FBT Confronts Businesses In Wake Of 39% Tax Rate

The new 39 percent top personal tax rate coming into effect on 1 April will result in many Kiwi businesses paying more Fringe Benefit Tax (FBT) than they need to, says Chartered Accountants Australia and New Zealand (CA ANZ).

“Businesses will be confronted with a stark choice,” says John Cuthbertson, New Zealand Tax Leader for CA ANZ. “In many cases they will have no or few employees with income over the top 39 percent threshold of $180,000.

“They will have to decide whether to keep it simple and pay more tax than they need to using a flat FBT rate which is out of step with what their employees actually earn or pay the right amount of tax and incur substantial extra compliance costs.

“Ultimately employers with the majority of their staff earning less than $180,000 will be hit hardest.”

The Taxation (Income Tax Rate and Other Amendments) Act applies from 1 April 2021. In addition to setting the new top personal rate of 39 percent, the legislation amends FBT and other tax rates. A new flat FBT rate of 63.93 percent will apply to non-cash employee benefits such as discounted goods and services and private use of company cars.

The new FBT rate represents an increase of nearly 30 percent on the old. It is tied to a top personal income threshold that greatly exceeds that of most employees in New Zealand. Just 2 percent of earners will pay the top rate.

“At present, many businesses for the sake of simplicity, calculate their FBT obligations using the single rate or the flat annual rate which is currently 49.25 percent. Compared to the income of most of their employees, this rate results in a broadly appropriate tax liability for the employer,” Cuthbertson said.

“The new higher flat FBT rate will upend that calculation. From 1 April, the FBT liability of many employers will not be appropriate for the reality of their payroll.

“Employers will have to figure out if it is better for them to pay too much tax using the new single rate or the flat annual FBT rate of 63.93 percent or spend significantly more time and energy at year end to make the necessary adjustments to ensure that they only pay the appropriate tax amount.”

CA ANZ would prefer a more targeted approach to dealing with the impact of the 39 percent top rate on FBT, including keeping the current FBT rates and only applying the new 63.93% rate to employees with income over $180,000.

“That way the policy would reflect the fact that employees earning more than the top threshold were the exception, not the rule,” Cuthbertson said.

“While it may have been efficient for officials to simply amend the FBT rate contained within existing legislative provisions, New Zealand’s current income distribution means that FBT rate will have a disproportionate effect for businesses.”

© Scoop Media

Business Headlines | Sci-Tech Headlines


Auckland: Quarterly Update: Rents Stable During Third Quarter

The average weekly rent for a home in Auckland moved less than $1 during the third quarter, ending 30 September at $606.25, according to data from more than 16,000 rental properties managed by Barfoot & Thompson... More>>

Electricity Authority: Review Of Competition In The Wholesale Electricity Market Raises Questions

In March 2021 the Electricity Authority announced it would conduct a review into competition in the wholesale electricity market. The period of the review covers the sustained elevated electricity prices since an unplanned outage at the Pohokura gas facility in Spring 2018... More>>

Government: RSI ‘State Of The Nation’ Report Published
latest research, science and innovation system report card is now available, and outlines how the system is performing, Research, Science and Innovation Minister Megan Woods has announced. “The report seeks to increase transparency, act as a reliable data source and stimulate discussion... More>>

LAWA: New Zealand Lakes Are Diverse In Their Condition And Type

Freshwater scientists have come together through the Land, Air, Water Aotearoa (LAWA) project to summarise the condition of New Zealand’s monitored lakes. They have found a varied picture of lake condition... More>>

Pamu & Westpac: Market-leading Sustainability-Linked Loan

Westpac NZ and Pāmu have signed New Zealand’s most comprehensive Sustainability-Linked Loan to date, also the largest in the agricultural sector, and the first involving a state-owned enterprise. Pāmu, also known as Landcorp, is New Zealand’s biggest farming business. It will borrow $85m from Westpac NZ over three years... More>>

Retail NZ: Some Good News In COVID Announcements, But Firm Dates Needed

Retail NZ is welcoming news that the Government is increasing financial support for businesses in light of the ongoing COVID-19 lockdown, and that retail will be able to open at all stages of the new “Covid Protection Framework... More>>