The government recently enacted legislation that makes certain employee-subsidised public transport fares exempt from FBT when employees commute using the following options:

1. Bus service
2. Rail service
3. Ferry
4. Cable car

Self-powered and low-powered vehicles provided and used by employees for getting to and from work are also exempt if the vehicles are:

1. A bike
2. An electric bicycle
3. A scooter
4. An electric scooter
5. A mobility device
6. A device that is not a vehicle

This legislation took effect from 01 April 2023 and is a significant and welcome change because all employee commutes were previously deemed to be of a private nature and therefore liable for FBT. This contrasted with the exemption for employee onsite parking, which had resulted in a perceived imbalance. The previous application also penalised employers who were trying to be environmentally friendly and support employees’ health and wellbeing.

FBT on private use of vehicles is generally the most common and expensive FBT cost to employers, so with this rule change, it could be a great time to review your employee travel and vehicle arrangements. There are a few things to think about, including:

• Whether employees would likely volunteer to change their mode of transport
• Whether they could be encouraged to change the way they travel to work
• Whether there are incentives that might attract them to use FBT-exempt modes of transport if they currently have expensive work vehicles
• Whether New Zealand employers in general will see a move to employees using more public transport and/or low- or self-powered vehicle transport

Tauranga City Council thinks so. Its procurement strategy included community consultation on non-car travel and its recent changes (including new cycle lanes) to the city’s main transport link, Cameron Road, supports the council’s anticipated change in transport mode as per its Tauranga Cycle Plan.

It is hard to know how much actual change will result from the new FBT exemptions.  Although it makes sense from an economic and tax perspective to use these alternatives, the convenience and safety of car travel has proven difficult to beat.

Also note that the benefit to employees must be in-kind and not cash. Cash benefits are subject to PAYE, whereas non-cash benefits are generally subject to FBT.

For example, if an employee uses one of the above subsidised public transport options, the employer cannot simply pay them an amount equal to the cost of travel and treat it as an FBT exemption. The employer must purchase the bus card directly from the third-party supplier, and then give the card to the employee. This transaction should give the employer a deduction for tax purposes, with no FBT or PAYE consequences.

The precaution is designed to minimise FBT avoidance, however Revenue Minister David Parker has said it may be amended if it proves impractical.

If you’d like help with these points or any other FBT matters, call our friendly tax or business advisors today.