Fringe Benefit Tax (FBT)
Fringe Benefit Tax (FBT) is a tax paid by employers on non-cash benefits they provide to employees, such as company vehicles for private use, low-interest loans, employer-paid health insurance, free or discounted goods, and employer contributions to non-KiwiSaver superannuation schemes.
FBT is the employer's liability, not the employee's — employees don't pay tax on fringe benefits they receive. However, FBT can indirectly affect what benefits employers choose to offer, since the tax cost makes some benefits more expensive than simply paying higher wages.
Employers can calculate FBT using the single rate (63.93%), the short-form alternate rate, or the full alternate rate (which attributes benefits to individual employees based on their marginal rates). The alternate rate methods can significantly reduce the FBT cost for employers with many lower-paid staff.
How it works
FBT exists to protect the PAYE tax base: without it, an employer could reward staff with untaxed perks instead of taxable salary, letting income effectively escape tax altogether. The single FBT rate of 63.93% looks high compared with personal income tax brackets, but it's grossed-up to roughly match what an employee would have paid if given the equivalent value as taxable cash salary at the top marginal rate — it isn't simply an extra tax layered on top of ordinary rates.
The short-form and full alternate rate methods work differently from the single rate. The short-form method applies a flat non-attributed rate to most benefits while still attributing motor vehicle benefits to individual employees, whereas the full alternate rate method attributes all benefits to each employee individually based on their own marginal tax rate, then squares up at year end — both can lower the overall FBT bill compared with applying the single rate to everything, particularly for employers with many lower-paid staff.
FBT liability sits entirely with the employer and never appears as a deduction on an employee's payslip, which is why many employees are unaware their employer is paying tax on the value of benefits like a work vehicle available for private use, subsidised health insurance, or discounted goods.
Example: FBT at the single rate
An employer provides an employee a fringe benefit valued at $2,000 for the quarter (for example, a low-interest loan or a gym membership subsidy), and calculates FBT using the single rate.
FBT payable = 63.93% x $2,000 = $1,278.60, paid by the employer to IRD — the employee receives the full $2,000 benefit and pays no tax on it directly.
Frequently asked questions
Do employees pay tax on fringe benefits they receive?
No — FBT is entirely the employer's liability; employees don't declare fringe benefits as income or pay tax on them directly, unlike receiving the same value as a cash bonus, which is taxed as income to the employee.
Why is the FBT rate so much higher than income tax rates?
The single FBT rate (63.93%) is grossed-up so that, after tax, it roughly matches what an employee would have paid if given the same value as taxable cash salary at the top personal tax rate — comparing it directly to income tax brackets understates the equivalent tax cost.
Can an employer avoid FBT entirely by using the alternate rate methods?
No, but the short-form and full alternate rate methods can reduce the overall FBT cost compared with the single rate, particularly for employers with a lot of lower-paid staff, because they attribute benefits closer to each employee's own marginal tax rate rather than one flat top rate applied to everyone.
Related Terms
IRD
Inland Revenue Department (IRD), commonly known as Inland Revenue or simply IRD, is the New Zealand government agency responsible for collecting taxes, distributing social support payments, and enforcing tax compliance.
PAYE
PAYE (Pay As You Earn) is the system that New Zealand employers use to deduct income tax from employees' wages and salaries.