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LegalTax & AccountingAugust 31, 2022

FBT reforms on the way?

A regulatory review of fringe benefit tax (tax) has been carried out to assess whether the tax is still meeting its policy objectives and to identify potential issues with the FBT rules.

It was completed as part of Inland Revenue’s regulatory stewardship role and involved consultation with both internal and external stakeholders, including Wolters Kluwer. The last review of FBT was conducted in 2003.

FBT continues to serve its original purpose - serving as a backstop to the PAYE system by taxing non-cash employee benefits. However, the report (“Fringe benefit tax: regulatory stewardship review”, August 2022) found that the tax is not without its issues. This has opened the door to possible reform.

Too complex and small net revenue gain

The most common issued identified by stakeholders was that FBT is a complex tax to comply with. This is not surprising given the many definitions and exemptions, the potentially complex calculations involved, and the requirement to keep detailed records. The interaction of FBT with other regimes, such as the PAYE rules and the entertainment rules, is also seen as problematic.

There is also the perception of potential over-taxation where there is no added value provided to the employee. Two examples identified in the report are taxing motor vehicles based on availability rather than actual use, and the provision of flowers to an employee on a bereavement.

Internally, within Inland Revenue, the report reveals that FBT is seen as a low-value tax. In the year ending 2020, revenue collected from FBT made up just 0.6% of total tax revenue. Inland Revenue also report a lack of FBT data, leading to constraints in assessing deficiencies. Perhaps, this has lead to less audit activity than otherwise might be the case.

Work related vehicle, on-premises, and health and safety exemptions

Another question posed in the report is whether the current FBT regime will deliver in the future, given technological advancements and the resulting changes in the way work is carried out. Employees are increasingly working from home. This has raised issues around the suitability of the work-related vehicle exemption, the on-premises exemption and the health and safety exemption.

Employee well-being is also an important emerging theme. This raises issues around benefits such as gym memberships and employee assistance programmes, which do not fall within the existing health and safety exemption.


With all of the above in mind, officials have recommended several options for change with the aim of modernising the FBT rules and reducing compliance costs. The first (and preferred) option is to commission a policy project that would involve a full review, resulting in fundamental reform of the FBT rules. The second option would involve a smaller-scale or remedial project which would focus on specific issues such as motor vehicles and benefits related to working from home. Whatever approach is adopted, it appears FBT changes may be on the horizon.

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