Fringe Benefit Tax (FBT) Explained for NZ Employers and Employees

When an employer provides non-cash benefits to employees — such as a company car, subsidised housing, or discounted goods — Fringe Benefit Tax (FBT) applies. FBT is paid by the employer, not the employee, but it’s important for both parties to understand how it works.

What Is a Fringe Benefit?

A fringe benefit is any non-cash benefit provided to an employee (or an associated person) in connection with their employment. The benefit doesn’t need to be part of the employment agreement — if it’s connected to the employment relationship, FBT likely applies.

Common Fringe Benefits

Motor Vehicles

The most common fringe benefit. If an employer provides a vehicle available for private use (including commuting), FBT applies. The taxable value can be calculated using either:

• Cost price method: 20% of the vehicle’s GST-inclusive cost price per year
• Tax book value method: 36% of the vehicle’s tax book value per year (subject to a minimum value)

Low-Interest Loans

If an employer provides a loan to an employee at below the FBT prescribed interest rate (6.07% from the quarter beginning 1 October 2026, up from 5.77% for January–September 2026 — IRD resets it quarterly), FBT applies on the difference between the market rate and the rate charged.

Employer Contributions to Insurance, Medical, or Other Schemes

Payments by the employer toward an employee’s health insurance, life insurance, or other non-work benefits are fringe benefits.

Subsidised Goods and Services

If an employer provides goods or services to employees at below market value (e.g., discounted products), the discount may be a fringe benefit.

Free or Subsidised Housing

If an employer provides accommodation at below market rent, the difference is a fringe benefit.

FBT Rates

Employers can calculate FBT using different methods:

The 63.93% rate looks high because it’s a gross-up rate — it’s designed to be equivalent to the employee receiving the benefit as taxable income at the top marginal rate (39%) and having tax deducted.

Pooling by Attribute

Under the alternate rate method, employers can apply different rates based on the employee’s all-inclusive pay (cash pay plus fringe benefits):

What’s Exempt from FBT?

Not everything triggers FBT. Common exemptions include:

• Employer KiwiSaver contributions (taxed via ESCT instead)
• Business tools provided primarily for work (e.g., laptops, phones used mainly for work)
• On-premises car parking
• Light refreshments at work (tea, coffee, fruit)
• Uniforms and protective clothing

Who Pays FBT?

The employer pays FBT — it doesn’t appear on the employee’s payslip or affect their personal tax return. However, the cost of FBT may influence employer decisions about what benefits to offer.

Filing and Payment

FBT is filed quarterly (or annually for small employers) using the IR420 return. Quarterly returns and payments are due on 20 July, 20 October and 20 January, and 31 May for the quarter ending 31 March.

Sources

• Fringe benefit tax — IRD
• FBT rates — IRD