Fringe Benefit Tax (FBT) is a tax employers pay when they provide non-cash benefits to employees. Rather than treating these benefits as employee income (and collecting PAYE), employers pay FBT directly to IRD. Understanding FBT helps employers avoid unexpected tax bills and helps employees understand what their benefits actually cost.
FBT is paid by employers (not employees) on the value of non-cash benefits provided. Common FBT benefits: company cars, low-interest loans, subsidised transport, employer-paid insurance, and certain entertainment. FBT rates range from 49.25% to 63.93%. Most small employers file annually (due 31 May). Employees do not pay FBT directly — the employer bears the cost, though it may affect what benefits are offered.
What Is FBT?
FBT taxes non-cash benefits that employees receive from their employer. Without FBT, employers could reduce taxable wages by substituting non-cash benefits, avoiding PAYE. FBT closes this loophole by taxing the employer at a rate equivalent to the employee’s marginal tax rate.
FBT is a cost to the employer — not deducted from the employee’s pay.
What Benefits Are Subject to FBT?
| Benefit | Notes |
|---|---|
| Motor vehicles | Private use of a company vehicle (most common FBT item) |
| Low-interest loans | Loans below IRD’s prescribed rate (currently 7.99% p.a. for 2025-26) |
| Free or subsidised transport | Employer-provided vehicles, flights, accommodation |
| Subsidised goods and services | Below-market goods or services from the employer’s business |
| Employment-related insurance | Life insurance, income protection paid by employer |
| Off-premises childcare | Employer-paid childcare at a facility the employer does not run |
| Employer contributions to non-KiwiSaver schemes | Contributions above certain limits |
Not subject to FBT:
- KiwiSaver employer contributions (taxed via ESCT instead)
- Overtime meals (minor benefits — under $300/quarter threshold)
- On-premises car parking
- Work-related tools provided to employees
- Minor and infrequent benefits under the de minimis exemption ($300/quarter, $1,200/year)
FBT Rates
FBT is calculated as a gross-up to approximate the equivalent income tax cost. The rates are:
| Basis | FBT rate |
|---|---|
| Single rate (flat) | 49.25% (on all taxable benefits for all employees) |
| Alternate rate — employees earning under $180,000 | 43.00% |
| Alternate rate — employees earning $180,000+ | 49.25% |
| Pooling rate (not an option for all) | 42.86% |
Most small employers use the single rate method (49.25%) for simplicity, paying a flat rate on all benefits regardless of employee income. Employers with high-earning staff may use the alternate rate method to save FBT.
Motor Vehicle FBT — The Biggest Category
Company vehicles available for private use are the most common FBT benefit. FBT applies even if the employee does not use the vehicle privately — “available for use” is sufficient.
Taxable value of a motor vehicle:
- 20% of the vehicle’s cost price (exc. GST) per year, OR
- On a quarterly basis: 5% of cost price per quarter
Example:
- Vehicle cost: $40,000
- Annual taxable value: 20% × $40,000 = $8,000
- FBT at 49.25%: $8,000 × 49.25% = $3,940/year employer cost
Vehicles used exclusively for business purposes (with business-only use restrictions in place and enforceable) are not subject to FBT. All-terrain and work utility vehicles that cannot reasonably be used privately may be exempt.
Low-Interest Loan FBT
If you lend money to an employee at a rate below IRD’s prescribed interest rate:
- Taxable value = (Prescribed rate − Actual rate) × Loan balance
- 2025-26 prescribed rate: 7.99% p.a.
Example:
- Employee loan: $20,000 at 0% interest
- Taxable value: 7.99% × $20,000 = $1,598/year
- FBT at 49.25%: $1,598 × 49.25% = $787/year
Filing FBT Returns
FBT can be filed quarterly or annually:
| Filing frequency | Who | Due dates |
|---|---|---|
| Quarterly | Employers with high FBT liability | 20 July, 20 October, 20 January, 31 May |
| Annual | Small employers (FBT under $500,000) | 31 May |
Most small employers file annually. The annual return is filed through myIR covering the 1 April – 31 March year, due 31 May.
Frequently Asked Questions
Does FBT affect my income tax?
FBT is tax-deductible for employers — the FBT paid reduces the employer’s taxable income. So the net cost is the FBT amount less the income tax saving.
Can I just include the value of benefits in my employee’s wages instead of paying FBT?
Yes — you can “FBT-proof” a benefit by including its value in the employee’s salary (as cash) and withholding PAYE. The employee pays income tax; the employer pays no FBT. However, the employee receives more taxable income.
My employer gave me a company car. Do I pay FBT?
No — your employer pays the FBT. It does not appear on your income tax return or affect your PAYE. However, it is a cost to your employer that affects what they can offer you overall.
Are electric vehicles subject to FBT?
Yes — EVs are subject to the same FBT rules as petrol vehicles. The taxable value is still based on the vehicle’s cost price. However, the government has from time to time provided concessionary FBT treatment for EVs to encourage uptake — check ird.govt.nz for current rules.