Crown Service Enterprise - ("CSE") Tax Policies GST, FBT, PAYE and Withholding Tax - Audit New Zealand
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Crown Service Enterprise
(“CSE”)
Tax Policies
GST, FBT, PAYE and Withholding Tax
Last updated: 8 February 2018
Disclaimer:
This document is intended only as a general guide, and should not be used or relied upon as a substitute for
specific professional advice. No liability is accepted for loss or damage incurred by persons who rely on this
document.
Tax Policies - GST FBT and PAYE - 2018CONTENTS 1 Introduction ..............................................................................................................5 2 Goods and Services Tax ..........................................................................................5 2.1 Overview....................................................................................................................................... 5 2.2 GST policy .................................................................................................................................... 5 2.3 Revenue from the Crown ............................................................................................................ 6 2.4 Fee income .................................................................................................................................... 6 2.5 Services provided overseas....................................................................................................... 6 2.6 Income in advance ....................................................................................................................... 6 2.7 Fees charged for seconded staff ............................................................................................. 7 2.8 Insurance claim proceeds ........................................................................................................... 7 2.9 Equity transactions ....................................................................................................................... 7 2.10 Capital charge ............................................................................................................................. 7 2.11 Tax invoices .................................................................................................................................. 7 2.12 Credit notes .................................................................................................................................. 8 2.13 Bad debts...................................................................................................................................... 8 2.14 Expenditure accruals ................................................................................................................... 8 2.15 Prepayments ................................................................................................................................. 9 2.16 Koha payments ............................................................................................................................ 9 2.17 Employee expenditure reimbursements................................................................................... 9 2.18 Allowances paid to employees ................................................................................................. 9 2.19 Overseas travel costs .................................................................................................................. 9 2.20 Imported goods ........................................................................................................................ 10 2.21 Imported services ...................................................................................................................... 10 2.22 Entertainment expenditure adjustment ................................................................................. 10 2.23 Employee contributions ............................................................................................................ 10 2.24 Petrol and gift vouchers .......................................................................................................... 10 Tax Policies - GST FBT and PAYE - 2018 2
2.25 Lease payments ........................................................................................................................ 11 2.26 Australian GST .......................................................................................................................... 11 3 Fringe Benefit Tax ..................................................................................................11 3.1 Overview.................................................................................................................................... 11 3.2 FBT policy ................................................................................................................................... 12 3.3 Employee contributions and salary sacrifices...................................................................... 12 3.4 Motor vehicles ........................................................................................................................... 13 3.5 Low-interest loans ..................................................................................................................... 14 3.6 Life, health and accident insurance ....................................................................................... 15 3.7 Overseas superannuation funds ............................................................................................. 15 3.8 GST on fringe benefits ............................................................................................................ 15 3.9 Exemption for business tools ................................................................................................... 15 3.10 Health and safety exemption ................................................................................................ 16 3.11 On-premises exemption .......................................................................................................... 16 3.12 Exemption for minor benefits ................................................................................................. 16 3.13 Car parks ................................................................................................................................... 16 3.14 Fixed assets sold or given to employees ............................................................................. 17 3.15 Gifts to staff .............................................................................................................................. 17 3.16 Clothing ...................................................................................................................................... 17 3.17 Subscriptions and membership fees ...................................................................................... 17 3.18 Private travel............................................................................................................................. 17 3.19 Course fees ................................................................................................................................ 18 3.20 Entertainment expenditure ...................................................................................................... 18 3.21 Group discounts ........................................................................................................................ 18 3.22 Airpoints ..................................................................................................................................... 18 3.23 Accommodation ......................................................................................................................... 18 4 PAYE and Withholding Tax ....................................................................................19 Tax Policies - GST FBT and PAYE - 2018 3
4.1 Overview.................................................................................................................................... 19 4.2 PAYE and withholding tax policy .......................................................................................... 19 4.3 Distinction between employees and independent contractors ......................................... 19 4.4 Accommodation benefits ......................................................................................................... 20 4.5 Travel allowances ..................................................................................................................... 20 4.6 Mileage allowances ................................................................................................................. 20 4.7 Reimbursements for relocation costs...................................................................................... 21 4.8 Reimbursements for capital items .......................................................................................... 21 4.9 Redundancy and exit inducement payments ....................................................................... 21 4.10 Payments for hurt and humiliation ......................................................................................... 21 4.11 Eye care payments ................................................................................................................... 22 4.12 Child care reimbursements ...................................................................................................... 22 4.13 Course fee reimbursements..................................................................................................... 22 4.14 Reimbursements for subscriptions and membership fees................................................... 22 4.15 Clothing allowances and reimbursements ............................................................................ 22 4.16 Reimbursement of car parking expenses ............................................................................. 23 4.17 Home telephone and internet costs ....................................................................................... 23 4.18 Superannuation fund contributions ........................................................................................ 23 4.19 Payments to contractors........................................................................................................... 23 4.20 Payments to members of boards and committees .............................................................. 24 4.21 Payments to guest speakers and presenters ....................................................................... 24 4.22 Koha payments ......................................................................................................................... 24 4.23 Payments to non-resident contractors ................................................................................... 25 4.24 Certificates of exemption ....................................................................................................... 25 Tax Policies - GST FBT and PAYE - 2018 4
1 Introduction
Although CSE is not subject to income tax, it has the same obligations as other
businesses and employers to correctly account for GST, FBT, PAYE and withholding
tax. It is also subject to the same potentially significant penalty and interest charges
for non-compliance.
This document provides an overview of each of these taxes, and guidance regarding
tax treatment of specific items. Further information regarding these taxes is available
on the IRD website.
The policies set out below specifically deal with the taxes and issues that are
considered to be applicable to CSE.
2 Goods and Services Tax
2.1 Overview
GST is charged on the supply of goods and services made by a registered person in
the course or furtherance of a taxable activity. GST is imposed on imported goods,
and in some cases, it is also imposed on imported services.
GST is generally charged at 15%. However, zero rated supplies (e.g. exported
goods and services, land transactions, overseas travel) are taxed at 0%, and exempt
supplies (e.g. financial services, residential accommodation) are not subject to GST.
Prior to 1 October 2010, the rate of GST was 12.5%.
A registered person must account for any GST charged but may claim a deduction
for GST paid on inputs used to make taxable supplies (including zero-rated supplies).
An input tax deduction cannot be claimed on expenses or purchases used to make
exempt supplies.
Where expenses or purchases are used to make both taxable and non-taxable
supplies, an input tax deduction can only be claimed for the portion relating to
taxable supplies.
In most cases, an input tax deduction cannot be claimed unless it is supported by a
valid tax invoice.
Public authorities (such as CSE) are required to account for GST on an invoice basis.
Under this basis, GST should be generally be accounted for in the period in which an
invoice is issued or any payment is received, whichever is earlier.
The standard taxable period for GST purposes is two months. However, registered
persons with annual taxable supplies of more than $24m are required to file GST
returns on a monthly basis.
2.2 GST policy
CSE will comply fully with GST legislation. This means that CSE will:
Tax Policies - GST FBT and PAYE - 2018 5• return all GST on taxable supplies of goods and services and claim all
available GST input tax credits;
• file GST returns in a complete and timely fashion;
• ensure all GST payments are made by the due date;
• retain all accounting records for seven years.
2.3 Revenue from the Crown
For GST purposes, a public authority (such as CSE) is deemed to supply goods and
services where any amount is brought to charge as revenue from the Crown for a
supply of outputs. The supply is deemed to take place in the period in which the
income is brought to charge.
As a result, CSE must account for GST on revenue from the Crown in the period that
the funding is recognised as income in monthly financial statements. For example,
Crown funding recognised as income in the financial statements for the month ended
31 May 2016 should be included in the GST return for the period ended 31 May
2016.
CSE will account for GST on revenue from the Crown in the period in which the
funding is recognised as income in the monthly financial statements.
2.4 Fee income
Under the invoice basis, a registered person is required to account for GST on any
supplies that are made or deemed to be made during the taxable period. In general,
a supply is deemed to take place in the period in which an invoice is issued or any
payment is received, whichever is earlier. As CSE does not receive payments in
advance of invoice, GST on fee income should be recognised in the period in which an
invoice is issued.
CSE will account for GST on fee income in the period in which an invoice is
issued.
2.5 Services provided overseas
Services performed overseas may be zero-rated for GST purposes (i.e. charged with
GST at 0%). Services provided to non-residents may also be zero-rated, provided
that the recipient of the supply is outside of New Zealand.
CSE will charge GST at 0% on services provided overseas, where applicable.
2.6 Income in advance
GST on fee income should generally be recognised when an invoice is issued,
irrespective of whether the services have been provided. As a result, any accounting
adjustments for income in advance should exclude GST.
CSE will ensure that accounting adjustments for income in advance exclude GST.
Tax Policies - GST FBT and PAYE - 2018 62.7 Fees charged for seconded staff
Where an employee is seconded to another organisation, the employer would usually
continue to pay the employee through their payroll system, and issue an invoice the
other organisation for the salary costs of the seconded employee.
A registered person is generally required to account for GST on all supplies of goods
and services (other than exempt or zero-rated supplies). A charge for the use of a
seconded employee is therefore subject to GST, even if it only covers the cost of the
employee’s salary.
CSE will account for GST on charges for seconded staff.
2.8 Insurance claim proceeds
In general, insurance proceeds constitute a deemed supply for GST purposes, and
are therefore subject to GST. However, in general, this only applies if GST was
charged and claimed on the insurance premiums. As a result, GST would not apply to
the proceeds from a life insurance policy. In some cases, GST would also not apply to
insurance proceeds received from a non-resident insurer.
The GST component of the insurance receipt would generally be specified on the
remittance advice.
CSE will return GST on insurance claim proceeds, where applicable.
2.9 Equity transactions
Equity transactions, such as capital contributions and capital repayments, are not
subject to GST.
CSE will not account for GST on equity transactions.
2.10 Capital charge
The capital charge paid to the Crown is a financing charge, and is therefore not
subject to GST.
CSE will not claim GST on the capital charge.
2.11 Tax invoices
In general, a registered person is not permitted to claim an input tax deduction unless
a valid tax invoice is held at the time the return is filed.
A valid tax invoice must contain the words “tax invoice”, the name and registration
number of the supplier, the name and address of the recipient, the date the invoice
was issued, and a description of the goods and services supplied. It must also contain
either:
• the GST-exclusive amount, the amount of GST and the GST-inclusive amount,
or
Tax Policies - GST FBT and PAYE - 2018 7• the total consideration (including GST) and a statement that it includes GST.
For supplies under $1,000, a simplified tax invoice (excluding the name and address
of the recipient) may be used. Where the consideration for a supply does not exceed
$50, a tax invoice is not required.
If CSE does not receive a valid tax invoice, one may be requested from the supplier.
The supplier must comply with such a request within 28 days.
A tax invoice may be issued in electronic form. All the minimum requirements outlined
above must still be satisfied.
All dollar amounts should be expressed in NZ dollars. If the price of a supply is set in
a foreign currency, the NZ dollar equivalent as at the time of supply is to be included
in the tax invoice.
CSE will not claim an input tax deduction for supplies exceeding $50 unless a
valid tax invoice is held.
2.12 Credit notes
If the price of a supply is reduced after a tax invoice is issued, CSE may claim a
deduction for the GST applicable to the price adjustment, provided that a valid
credit note is issued. A credit note must contain the same particulars as a tax invoice
(see above). However, the words “tax invoice” would be replaced by the words
“credit note”.
CSE will issue credit notes that meet the above requirements.
2.13 Bad debts
A person registered on the invoice basis may claim an input tax deduction for any
bad debts written off. The deduction effectively recovers the GST that has previously
been recognised on the sale. However, the debt must actually be written off before a
deduction can be claimed. An input tax deduction is not permitted for doubtful debts.
When a person subsequently recovers all or part of the bad debt, GST is payable on
the amount of the recovery.
CSE will claim an input tax deduction for any bad debts written off.
2.14 Expenditure accruals
CSE is entitled to claim an input tax deduction for any invoices dated in period.
However, an input tax deduction cannot be claimed for expenditure accrued at the
end of the period, if the invoices will be dated after period end. As a result,
expenditure accruals should generally be recognised net of GST.
CSE will not claim GST on expenditure accruals.
Tax Policies - GST FBT and PAYE - 2018 82.15 Prepayments
GST on expenses should generally be claimed in the period in which the invoice is
dated, regardless of whether all or part of the expense is regarded as prepaid. As a
result, any accounting adjustments for prepaid expenditure should exclude GST.
CSE will ensure that accounting adjustments for prepaid expenditure exclude GST.
2.16 Koha payments
As with donations, genuine koha payments are not subject to GST, as the payment
does not constitute consideration for a supply of goods and services.
Even if the payment relates to services provided, it is unlikely that a valid tax invoice
would be issued. As a result, CSE would not be able to claim an input tax deduction in
relation to these payments.
CSE will not claim GST on koha payments unless it receives a valid tax invoice.
2.17 Employee expenditure reimbursements
In general, an employer is permitted to claim an input tax deduction in relation to a
reimbursement paid to an employee for business related expenses, provided that the
invoicing requirements are satisfied. For example, CSE would be able to claim GST in
relation to the reimbursement of professional membership fees, provided that a valid
tax invoice supports the reimbursement request.
GST cannot be claimed on reimbursements for private expenditure (e.g. eye care
payments).
CSE will claim GST on the reimbursement of business related expenses, provided
that the invoicing requirements are satisfied.
2.18 Allowances paid to employees
The IRD does not allow an input tax deduction in relation to allowances paid to the
employees as there is an insufficient connection between the payments made by the
employer and the expenditure incurred by the employee. For example, CSE should
not claim GST on travel allowances or mileage allowances.
CSE will not claim GST on allowances paid to employees.
2.19 Overseas travel costs
Overseas travel costs do not include GST because either the supply takes place
outside New Zealand or the supply is zero-rated for GST purposes. As a result, CSE
cannot claim an input tax deduction in relation to overseas travel expenditure.
Invoices from local travel agents should specifically mention the amount of GST
included in the travel charges, if any.
CSE will not claim GST on overseas travel costs.
Tax Policies - GST FBT and PAYE - 2018 92.20 Imported goods
Where goods are imported into New Zealand, the New Zealand Customs Service will
impose GST at the rate of 15% (along with any other importation fees).
CSE can claim GST input tax in respect of these goods where a valid tax invoice is
held. A Customs import entry form is regarded as a valid tax invoice.
GST should not be claimed on the payment to the overseas supplier.
CSE will claim GST on imported goods when it holds a valid tax invoice from
Customs.
2.21 Imported services
GST must be returned on imported services acquired by an organisation that makes
less than 95% taxable supplies (e.g. 20% exempt supplies and 80% taxable
supplies). However, in general, this is only an issue for organisations that cannot claim
a full input tax deduction on the acquired services, such as financial institutions.
As CSE can claim an input tax deduction for all of the GST it is charged, it should not
return or claim GST on imported services.
CSE will not account for GST on imported services.
2.22 Entertainment expenditure adjustment
For income tax purposes, certain entertainment expenditure (e.g. client lunches, Friday
drinks, Christmas parties) is only 50% deductible. A registered person is deemed to
have made a supply of the entertainment for the amount of the deduction disallowed.
Consequently, most taxpayers are required to account for GST on non-deductible
entertainment expenditure.
However, as CSE is exempt from income tax as a public authority, it has no
disallowed deductions for entertainment expenditure, and is therefore not required to
make any GST adjustment for entertainment expenditure.
CSE will not make any GST adjustment for entertainment expenditure.
2.23 Employee contributions
Where employees contribute towards the cost of a private benefits provided by CSE
(e.g. private use of cell phones), the contribution received from the employee is
generally subject to GST.
CSE will return GST on employee contributions.
2.24 Petrol and gift vouchers
GST on vouchers may be recognised when the voucher is issued or when the voucher is
redeemed. If the invoice for the voucher states that there is no GST on the transaction,
it means that the supplier accounts for GST when the voucher is redeemed, rather
Tax Policies - GST FBT and PAYE - 2018 10than when it is issued. In this situation, an input tax deduction cannot be claimed for
the purchase of the voucher.
CSE will claim input tax on the purchase of vouchers based on the GST
component specified on the invoice.
2.25 Lease payments
A lease is regarded as an agreement for hire for GST purposes. As a result, GST is
claimed on each instalment, regardless of whether it is considered to be an operating
lease or a finance lease.
In addition, if the total lease payments exceed the cost of the asset, GST only applies
to the non-interest element of the consideration (i.e. the principal component).
The GST component of each lease payment is generally specified in the lease
agreement.
CSE will claim GST on lease payments based on the GST component specified in
the lease agreement.
2.26 Australian GST
Any GST charged by other countries on expenses such as meals, accommodation or
conferences fees cannot be claimed as an input tax deduction in a New Zealand GST
return.
CSE will not claim Australian GST as an input tax deduction.
3 Fringe Benefit Tax
3.1 Overview
FBT is a tax paid on the value of fringe benefits provided to employees. Fringe
benefits are non-cash benefits provided to employees in addition to their normal cash
salary. Common examples include motor vehicles, life and medical insurance, private
travel and gifts.
For FBT purposes, an employee includes any individual that receives payments subject
to PAYE or withholding tax. This could include a board member or committee member.
However it would generally not include a contractor or a staff member seconded
from another organisation. Benefits provided to a person associated with an
employee (e.g. a spouse) are deemed to be provided to the employee.
Benefits will only be subject to FBT where the employer is invoiced for the benefit. If
the employee is invoiced, and the employer pays the invoice or reimburses the
employee, the benefit is subject to PAYE.
The value of a fringe benefit is generally based on the GST inclusive cost of the good
or services to the employer, less any contributions received from the employee.
However, in some cases (e.g. fixed assets sold to staff), the market value of the goods
or services must be used to value the fringe benefit.
Tax Policies - GST FBT and PAYE - 2018 11In general, FBT applies to any motor vehicles that are taken home at night by
employees, other than work related vehicles. The quarterly value of a motor vehicle
fringe benefit is based on 5% of the GST exclusive cost of the vehicle.
The FBT regime includes exemptions for private use of business tools (e.g. cell phones),
benefits enjoyed on the premises (e.g. car parks), benefits arising from health and
safety obligations (e.g. eye tests), and minor unclassified benefits (e.g. small gifts).
The standard rate of FBT is based on the top marginal tax rate for individuals. At
present, the standard rate of FBT is 49.25%. Prior to 1 October 2010, the rate was
61%.
Employers have the option of paying FBT at a lower rate, and completing an
alternate rate (formerly multi-rate) calculation in the fourth quarter. Tax savings can
be achieved by using the alternate rate calculation if benefits are attributed to
individuals on lower marginal tax rates, or if the employer provides non-attributed
benefits.
The FBT return also includes an adjustment for GST on fringe benefits. Essentially, this
adjustment pays back the GST claimed on the fringe benefits provided. The
adjustment is calculated based on 3/23 of the value of the fringe benefits provided.
3.2 FBT policy
CSE will comply fully with tax legislation applicable to FBT. This means CSE will:
• identify and record all fringe benefits it provides;
• file any FBT returns in a complete and timely fashion;
• ensure all FBT payments are made by the due date;
• retain all accounting records for seven years.
3.3 Employee contributions and salary sacrifices
The taxable value of any fringe benefit provided by CSE will be reduced by any
amount paid by an employee for the use or enjoyment of that benefit. If contributions
from the employee equal the cost to the employer, the taxable value of the benefit
will be nil.
It is important to note that employee contributions are different to salary sacrifices.
An employee may choose to sacrifice part of their cash salary to receive a fringe
benefit, such as a car. This is not regarded as an employee contribution. A salary
sacrifice reduces the employee’s cash salary and therefore reduces the amount
subject to PAYE. However, in most cases, it will increase the employer’s FBT liability
by a similar amount.
An employee contributions is an amount charged to the employee or possibly
deducted from their after tax salary. Common examples of employee contributions
include charges for private use of vehicles or cell phones
Tax Policies - GST FBT and PAYE - 2018 12CSE will reduce the taxable value of a fringe benefit by any amount paid by the
employee for that benefit.
3.4 Motor vehicles
In general, FBT applies when an employer makes a motor vehicle available to an
employee for their private use. For FBT purposes, private use specifically includes
travel between home and work. As a result, most vehicles that are taken home at
night by employees would be subject to FBT. However, FBT may not apply to travel
between home and work if the vehicle is a work related vehicle or the employee uses
their home as a work base.
Calculating the value of the motor vehicle fringe benefit
The quarterly value of a motor vehicle fringe benefit is calculated as follows:
YxZ
90
Y is the lesser of:
• The number of days in the quarter on which the vehicle was available for
private use reduced by the number of days on which the vehicle was exempt
as a work-related vehicle (see below), or
• 90 days.
Z is calculated using 5% of the GST inclusive cost price of the motor vehicle. The cost
of the vehicle for FBT purposes includes the purchase price, the initial registration and
licence plate fees, and the cost of accessories (other than separately depreciable
assets). Where the vehicle has been acquired for no cost or the cost cannot be
determined, the cost price will be treated as being the same as the market value of
the vehicle.
The basis for calculating FBT on vehicles applies regardless of whether the vehicle is
owned, leased or rented by the employer. In relation to leased vehicles, the cost of
the vehicle for FBT purposes would generally be specified in the lease agreement.
Employers also have the option of calculating Z based on 9% of the GST inclusive tax
book value of the vehicles. However, in general, this option only results in FBT savings
if the employer owns the vehicle for more than five years.
Employers may qualify for certain daily exemptions, which reduce the number of FBT
liable days. This includes emergency calls, 24-hour business travel, and other times
when the vehicle is unavailable, such as breakdowns (see below).
Days available for private use
The calculation of the number of days available for private use should exclude the
following:
Tax Policies - GST FBT and PAYE - 2018 13• Any day when the employee uses the vehicle on business travel, if the
duration of the trip exceeds 24 hours. This would include using the vehicle for
travel to or from the airport. The day the employee leaves and the day the
employee returns should be counted as exempt days.
• Any day when the employee makes an emergency call from home. This is
defined as an after-hours visit made by an employee from home in the
course of employment to provide essential or emergency services. Attending
a meeting after hours would not qualify as an emergency call.
• Any full day when the vehicle is not available for private use. This would
include the situation where the vehicle is being repaired, or where the
employee is away on business travel and the vehicle is parked at the airport
or at the office.
• Any full day when private use of the vehicle is not permitted. For example, if
private use was restricted to travel between home and work, private use
would not be permitted on weekends or public holidays.
An FBT day is a 24-hour period starting at midnight, unless the employer elects that
the day starts from another time.
Work related vehicles
Work related vehicles are generally exempt from FBT. The definition of a work
related vehicle refers to a vehicle that is not principally designed for the carriage of
passengers, such as a van, a utility, and a station wagon or hatchback with the rear
seat removed or fixed down. The vehicle must also have the employers name or logo
affixed to the exterior. In general, private use of the vehicle must be restricted to
travel between home and work, in the course of and as a condition of employment.
CSE will calculate the value of a motor vehicle benefit as indicated above.
3.5 Low-interest loans
The provision of loans to employees for low or nil interest is subject to FBT. The
taxable value of a low-interest loan is the difference between the interest calculated
on the daily balance of the loan for the quarter using the IRD-prescribed interest
rate, and the interest actually charged to the employee on that loan for the quarter.
The IRD-prescribed interest rate is reviewed periodically in light of market rates, and
the applicable rates are available on the IRD website.
An advance of salary and wages is not a fringe benefit if the advance does not
exceed $2,000 and the advance is not a requirement under the contract of
employment.
CSE will account for FBT on low-interest loans.
Tax Policies - GST FBT and PAYE - 2018 143.6 Life, health and accident insurance
In general, FBT applies to any life, health or accident insurance taken out by the
employer for the benefit of the employee or his/her family. The value of the benefit
is based on the insurance premiums paid by the employer.
Income protection insurance is not subject to FBT if the premiums would have been
deductible to the employee.
CSE will account for FBT on insurance benefits provided to employees.
3.7 Overseas superannuation funds
Most contributions to superannuation funds are subject to employer superannuation
contribution tax. However, contributions to overseas superannuation funds are
generally subject to FBT.
CSE will account for FBT on contributions to overseas superannuation funds,
where applicable.
3.8 GST on fringe benefits
A fringe benefit provided by a registered person is deemed to be a supply of goods
and services. As a result, a registered person is generally required to return GST
based on 3/23 of the value of fringe benefits provided to staff. Prior to 1 October,
the calculation was based on 1/9 of the fringe benefit value.
However, GST does not apply if the fringe benefit arose by virtue of an exempt
supply (e.g. life insurance) or zero-rated supply (e.g. international travel), or if GST
cannot be claimed on the fringe benefit (e.g. vouchers).
Essentially, this adjustment pays back the GST claimed on the fringe benefits
provided. The adjustment for GST on fringe benefits should be charged to FBT
expense, rather than the input tax account.
The disclosure and payment of GST on the value of fringe benefits forms part of the
FBT return.
CSE will account for GST on the provision of fringe benefits, where applicable.
The adjustment for GST on fringe benefits will be charged to FBT expense.
3.9 Exemption for business tools
Benefits arising from the private use of business tools (such as cell phones and laptop
computers) are not subject to FBT, provided that the tools are provided primarily for
business purposes. The cost of each business tool must not exceed $5,000.
CSE will not account for FBT on the private use of cell phones, laptops or other
business tools.
Tax Policies - GST FBT and PAYE - 2018 153.10 Health and safety exemption
Benefits arising from an employer’s health and safety obligations are not subject to
FBT. To qualify for the exemption the benefits must be aimed at eliminating work
place hazards.
This exemption would apply to eye tests, health checks, flu vaccinations, and
employee counselling.
CSE will not account for FBT on health and safety benefits.
3.11 On-premises exemption
Benefits that are provided on the premises of the employer are excluded from FBT.
To be eligible for the exemption, the benefits must also be used or enjoyed by the
employee on the premises. This exemption would generally apply to car parks that
are owned or leased by the employer. It could also apply to an on-site gym or
crèche.
CSE will not account for FBT on benefits provided on the premises.
3.12 Exemption for minor benefits
For most employers, minor unclassified benefits provided to staff are generally
exempt from FBT.
FBT is only payable if the total value of minor benefits provided to an employee in
the quarter is more than $300, or the total value of all unclassified benefits provided
to all employees in the last four quarters is more than $22,500. Once either of these
limits is exceeded, the full value of the benefit is subject to FBT.
This exemption does not apply to classified benefits such as motor vehicles, low-
interest loans or insurance. However, it would apply to benefits, such as gifts, that are
not covered by the other exemptions.
Note that the disposal of a vehicle to an employee for below market value is an
unclassified benefit.
CSE will apply the exemption for minor benefits.
3.13 Car parks
Car parks provided to employees are not subject to FBT if they fall under the
exemption for benefits provided on the employer’s premises. In general, this requires
to employer to have substantially exclusive rights to use the parking space. Car parks
on land owned by the employer would be exempt from FBT. In most cases, leased
parking spaces would also be exempt from FBT. However, licensed car parks are
more likely to be subject to FBT, unless the agreement provides for an allocated
parking space.
CSE will only account for FBT on car parks provided employees where the on-
premises exemption does not apply.
Tax Policies - GST FBT and PAYE - 2018 163.14 Fixed assets sold or given to employees
Where a fixed asset (such as a motor vehicle) is sold to an employee at less than
market value, the difference between the market value and the amount paid by the
employee will be subject to FBT. This may occur if the employee has the option of by
an asset at book value, rather than market value. It could also occur when an
employee is given certain assets (such as their company car) as part of a severance
package.
CSE will account for FBT on any fixed assets sold or given to employees at less
than market value.
3.15 Gifts to staff
Non-cash gifts provided to staff (e.g. movie tickets, gift vouchers) are subject to FBT.
However, the exemption for minor benefits may eliminate any FBT liability.
CSE will account for FBT in relation to gifts provided to staff, where applicable.
3.16 Clothing
In general, the provision of clothing is subject to FBT. However, if the clothing can be
regarded as protective clothing or distinctive work clothing the benefit is not subject
to FBT. The definition of distinctive work clothing refers to any clothing that forms part
of a uniform.
The exemption for minor benefits may eliminate any FBT liability.
CSE will account for FBT on clothing provided to employees, where applicable.
3.17 Subscriptions and membership fees
Professional subscriptions are not subject FBT, provided that membership is related to
employment duties.
The provision of Koru Club membership is not subject to FBT, provided that the
employee is required to travel for work purposes.
Non-work related subscriptions and membership fees (e.g. gym fees) are subject FBT.
However, the exemption for minor benefits may eliminate any FBT liability.
CSE will not account for FBT on work related subscriptions and membership fees.
3.18 Private travel
Private travel benefits provided to staff are subject to FBT. This would include the cost
of travel for private purposes, and the cost of any private excursions or extended
stays while away on business travel. It could also include the cost of an accompanying
spouse on a business trip.
CSE will account for FBT on any private travel benefits.
Tax Policies - GST FBT and PAYE - 2018 173.19 Course fees
In general, course fees will not subject to FBT provided that the course is work-related
or the course is held on the employer’s premises.
Course fees paid for an employee as part of a severance package cannot be
regarded as work-related, as there is no benefit to the employer. These payments
should be taxed.
CSE will not account for FBT on any courses that are work related or are held on
the premises.
3.20 Entertainment expenditure
In general, FBT only applies to entertainment expenditure (e.g. food and beverages)
if the employee can enjoy the benefit at a time of their choosing and not as a
consequence of their employment duties. For example, restaurant vouchers given to
employees would be subject to FBT. However, the cost of morning teas, Friday drinks,
Christmas lunches and other staff functions would not be subject FBT.
The exemption for minor benefits may eliminate any FBT liability on entertainment
benefits.
CSE will not account for FBT on entertainment expenditure at staff functions.
3.21 Group discounts
Discounts provided to a group of employees by a non-associated third party (e.g.
Southern Cross) are generally not subject to FBT. However, if the discount involved a
cost to the employer, the benefit would be subject to FBT.
CSE will not account for FBT on group discounts received by employees.
3.22 Airpoints
An employer is not subject to FBT on Airpoints Dollars received by an employee as a
result of work-related travel.
CSE will not account for FBT on Airpoints Dollars received by employees.
3.23 Accommodation
Although free or discounted accommodation would normally be regarded as a non-
cash benefit, accommodation benefits are generally subject to PAYE, rather than FBT.
Further information regarding PAYE on accommodation is set out below in the PAYE
section.
CSE will not account for FBT on accommodation benefits.
Tax Policies - GST FBT and PAYE - 2018 184 PAYE and Withholding Tax
4.1 Overview
In general, an employer is required to account for PAYE in relation to all payments
made to employees, other than reimbursements for work-related expenses and
genuine payments for hurt and humiliation. Accommodation benefits provided to
employees may also be subject to PAYE.
Reimbursements and allowances in relation to expenses incurred in deriving
employment income are treated as exempt income (i.e. tax free).
Employers are permitted to calculate a tax-free allowance based on a fair and
reasonable estimate of work-related expenditure likely to be incurred by an
employee. Allowances that exceed a fair and reasonable amount are partially
taxable.
Reimbursements or allowances in relation to private expenditure or capital
expenditure (e.g. fixed assets) are subject to PAYE. Allowances in relation to extra
effort, additional responsibilities or unpleasant tasks are also taxable.
Employers may also be required to deduct tax from payments made to contractors
and from superannuation contributions.
4.2 PAYE and withholding tax policy
CSE will comply with tax legislation applicable to PAYE and withholding tax.
Consequently CSE will:
• ensure that tax is deducted and accounted for, where applicable;
• ensure that all payroll returns are filed in a complete and timely manner;
• ensure that all payments are made by the due date;
• retain all accounting records for seven years.
4.3 Distinction between employees and independent contractors
Payments made to employees are subject to PAYE. However, in many cases,
payments made to contractors are not subject to tax deduction.
An employment relationship can only exist if there is a contract between an employer
and an individual. As a result, individuals engaged through a temping agency, their
own company or another organisation (i.e. seconded staff) would generally not be
treated as employees of CSE.
An individual who performs the same work as other employees, is paid based on an
hourly rate, accepts no business risk under their contract and works under the direct
control of other staff would generally be regarded as an employee.
Tax Policies - GST FBT and PAYE - 2018 19CSE will only engage individuals as contractors in situations where it could not be
argued that an employment relationship exists.
4.4 Accommodation benefits
Free or discounted accommodation provided to employees is subject to PAYE, unless
one of the following exemptions applies:
• Accommodation provided to staff working away from home is generally
exempt from tax if the employee is expected to be working in the new
location for less than 2 years.
• Accommodation provided to staff working in more than one location on an
on-going basis is exempt from tax without an upper limit.
• Temporary accommodation provided to an employee as part of a relocation
package is generally exempt from tax for up to three months after arrival.
The taxable value of accommodation is generally based on the market rental for the
accommodation provided, less the amount paid by the employee (if any).
CSE will account for PAYE on accommodation benefits provided to employees,
where applicable.
4.5 Travel allowances
CSE pays a travel allowance of $65 per day for meal costs incurred by employees
while travelling away from home on business. As this is considered to be a reasonable
estimate of work-related expenditure likely to be incurred by an employee, the
allowance is treated as non-taxable.
The exemption for meal payments for staff working away from home is subject to a
three-month limit at a particular location. After this period, the payments are taxable.
CSE will treat travel allowances as non-taxable, where applicable.
4.6 Mileage allowances
Employers may pay a tax-free mileage allowance to employees for business use of
private vehicles. The reimbursement may be based the actual expenditure incurred
by the employee, a reasonable estimate of expenditure incurred, rates published by
the IRD, or rates published by a reputable independent source (such as the AA
mileage rates).
CSE calculates motor vehicle reimbursements based on the lower of the AA mileage
rates or the rental car equivalent. As a result, these reimbursements can be treated as
exempt from tax.
CSE will not deduct tax from motor vehicle reimbursements paid to employees.
Tax Policies - GST FBT and PAYE - 2018 204.7 Reimbursements for relocation costs
In general, reimbursements of relocation costs paid to new or existing employees
working in a new location are not subject to tax, provided that the employee’s
existing home is not within reasonable travelling distance of the new work place.
The amount paid must be no more than the actual amount incurred by the employee
on eligible relocation expenditure. The determination of eligible expenditure is
available on the IRD website. It provides a very comprehensive list of relocation
expenditure, including airfares, transport of personal effects, and temporary
accommodation for up to three months after arrival.
The exemption does not apply to relocation allowances paid to an employee who is
leaving the organisation.
CSE will not account for PAYE on eligible relocation costs for new or existing
employees.
4.8 Reimbursements for capital items
In general, a reimbursing payment made to an employee is only non-taxable to the
extent that it reimburses expenditure which would have been deductible to the
employee. For tax purposes, expenditure is not deductible if it is private or capital in
nature. As a result, reimbursements for capital items (e.g. computers, smartphones) are
taxable, even if the asset will be partly used for work purposes.
CSE will account for PAYE on any reimbursements for capital items.
4.9 Redundancy and exit inducement payments
Inducement payments may be made to encourage employees to leave an office or
position. These payments are subject to PAYE.
Redundancy payments are also subject to PAYE.
CSE will account for PAYE on redundancy payments and exit inducement
payments.
4.10 Payments for hurt and humiliation
Payments that are genuinely and entirely for compensation for humiliation, loss of
dignity, or injury to feelings are non-taxable. However, payments that in reality
relate to lost income, redundancy entitlements or exit inducements are taxable, and
subject to PAYE. Simply classifying the payment as hurt and humiliation in the
settlement agreement signed by the mediator does not make the payment non-
taxable.
In an IRD review or investigation, the employer would need to be able to show that
the employee had a genuine personal grievance (as defined), and that the amount
paid was reasonable based on the hurt and humiliation suffered by the employee. It
should be noted that most of the amounts awarded by the Courts for hurt and
humiliation are under $10,000, and only a small percentage are over $15,000.
Tax Policies - GST FBT and PAYE - 2018 21In general, it would be difficult to convince the IRD that any payments over $25,000
are not at least partially taxable. Tax liabilities may also exist in relation to smaller
payments. In cases where there is no evidence of a genuine personal grievance, the
IRD may consider that the entire payment is taxable.
CSE will not account for PAYE on genuine payments for hurt and humiliation.
4.11 Eye care payments
Many employers in the public sector make eye care payments to their employees.
This can include reimbursements for eye tests and reimbursements for new spectacles.
The IRD considers that eye care payments made to office staff are generally
taxable, as the costs are private in nature. PAYE should be deducted from
reimbursements for spectacles or eye tests, and GST should not be claimed on these
payments.
CSE will account for PAYE on eye care payments.
4.12 Child care reimbursements
The reimbursement of the child-care costs is subject to PAYE, as the costs are
considered to be private in nature.
CSE will account for PAYE on the reimbursement of child-care costs.
4.13 Course fee reimbursements
In general, a reimbursement of course fees will not subject to PAYE, provided that the
course is work related. However, a course fee reimbursement negotiated as part of
an exit package would be taxable, as the employer would receive no benefit from
the former employee attending the course.
CSE will account for PAYE on the reimbursement of non-work related course fees.
4.14 Reimbursements for subscriptions and membership fees
The reimbursement or payment of professional subscriptions is not subject PAYE,
provided that membership is related to employment duties.
Non-work related subscriptions and recreational fees (e.g. gym fees) are considered
to be private expenses. The reimbursement of these costs would therefore be subject
to PAYE.
CSE will account for PAYE on the reimbursement of non-work related
subscriptions and membership fees.
4.15 Clothing allowances and reimbursements
Clothing is usually regarded as a private expense. Consequently, a reimbursement or
allowance in relation to clothing costs would generally be subject to PAYE. However,
Tax Policies - GST FBT and PAYE - 2018 22if a particular occupation required an employee to wear a uniform or protective
clothing, a reimbursement of these costs could be treated as non-taxable.
CSE will account for PAYE on clothing allowances.
4.16 Reimbursement of car parking expenses
The cost of travelling to work and the cost of car parking are usually regarded as
private expenses. As a result, a reimbursement for cost of car parking would
generally be subject to PAYE. However, the reimbursement of car parking expenses
incurred while on business travel would not be subject to PAYE.
CSE will account for PAYE on any reimbursements for private parking expenses.
4.17 Home telephone and internet costs
Where employees are required to use their home telephone or internet connection for
work purposes, the IRD will generally accept that 50% of the connection cost is
business-related. However, if the employee is provided with a work cell phone, it may
be difficult to convince the IRD that any portion of the home telephone rental is
business-related.
PAYE will apply to any reimbursements that exceed the business-related portion of
these costs.
CSE will account for PAYE on the private portion of any reimbursements of home
telephone and internet costs.
4.18 Superannuation fund contributions
Contributions to a superannuation fund may be subject to employer superannuation
contribution tax (ESCT).
Contributions to a superannuation fund would generally include both an employer
contribution and an employee contribution. Only employer contributions are subject to
ESCT. Employee contributions are deducted from tax paid income and are therefore
already net of PAYE deductions.
Compulsory employer contributions to Kiwisaver were originally exempt from ESCT.
However, with effect from 1 April 2012, all employer contributions to Kiwisaver are
now subject to ESCT.
Contributions to overseas superannuation funds are generally subject to FBT rather
than ESCT.
CSE will deduct ESCT from employer contributions, where applicable.
4.19 Payments to contractors
Schedular payments made to contractors are subject to tax deduction. An abridged
list of these payments and the applicable deduction rates can be found on the
IR330C tax rate notification form. Common examples include payments to board
Tax Policies - GST FBT and PAYE - 2018 23members, gardeners, cleaners and entertainers. Tax must be deducted from these
payments unless:
• the contractor has an exemption certificate from the IRD, or
• the contractor is a company (other than a non-resident contractor), a Maori
authority, a public authority or a local authority.
It is not relevant whether the contractor is registered for GST. Payments to a
GST-registered contractor can still be subject to tax deduction. Where the gross
amount of the payment to a contractor includes GST, tax should be calculated based
on the GST-exclusive amount.
Contractors now have the option of choosing their deduction rate, but in most cases, it
cannot be lower than 10%. Contractors can also apply to the IRD for a special tax
rate certificate or an exemption certificate.
Contractors who are not receiving schedular payments can request to have tax
deducted from their payments. If the payer agrees, the payments are treated as
voluntary schedular payments. Both parties must agree in writing.
Higher deduction rates apply to payments made to contractors who have not
completed the IR330C tax notification form. If applicable, CSE should ask the
contractor to complete an IR330C before any payment is made.
CSE will ensure withholding tax is deducted from payments to contractors, where
applicable.
4.20 Payments to members of boards and committees
In general, payments for work or services performed by members of boards, councils
and committees are subject to withholding tax, unless the IRD has issued an exemption
certificate, or the services are provided by a company or another public authority.
CSE will deduct withholding tax from fees paid to members of boards, councils
and committees, where applicable.
4.21 Payments to guest speakers and presenters
The list of schedular payments specifically includes payments for making speeches or
giving lectures or talks for any purpose. As a result, payments made to guest
speakers and presenters are generally subject to withholding tax, unless the IRD has
issued an exemption certificate, or the services are provided by a company.
CSE will deduct withholding tax from payments made to guest speakers and
presenters, where applicable.
4.22 Koha payments
In certain situations, koha payments made to individuals may be subject to
withholding tax. For example, koha payments made to individuals for attending
meetings, cultural performances or giving speeches would be subject to tax deduction.
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