Thursday, 28 February 2013

Fringe Benefit Tax (FBT)

This is a tax paid by the employer on certain benefits given to an employee.The most common one of these is a motor vehicle. There is however exemptions from paying FBT on vehicles in these 4 circumstances:
  1. The vehicle is a work-related vehicle and it is not available for general private use and the following apply (Full exemption):

    • Employees or shareholders store the vehicle at home and
       
    • It may not be used for general private purposes and
       
    • It is a work related vehicle which means the following

      1. principal design of the vehicle cannot be for carrying of passengers,
           
      2. the exterior of the vehicle must permanently and prominently display the name of the employer or the business logo,
         
      3. the employer must inform the employee in writing that the only personal use of the vehicle is travel between work and home or travel incidental to business travel (for example, passing by the bank on the way home from work).
           
      The employer must conduct a check,at least quarterly, that the above is adhered to.

       
  2. Work-related vehicles with limited private use (partial exemption)
    • You will qualify for a partial exemption if the above conditions apply, but the vehicle is available for private use on certain days.
       
    • The employer must however specify which days and cannot only say "any two days of the week"
       
  3. Vehicles stored on the employer's premises (Full exemption)
    • The vehicle is stored on the business premises or
       
    • at a company shareholder's home that is also the company's premises and ;there is no private use of the vehicle.
  4. Vehicles over 3500kg. (Full exemption)
More information on FTB at the IRD website

Mileage Rates

As part of running your business, you and/or your staff more than likely travel.

It is often seen as more effort than worth it to do a log book for all travel, record the associated expenses for the year and then apportion the business percentage.

There is an easier way for smaller businesses.

The IRD determines a rate for mileage claims/rebates so that business can use this rate for all kilometers travelled. This rate reflects the average costs associated with running a motor vehicle.

The rate can be used for all mileage during the year that is 5000 km or less.

A logbook of the travel claimed still needs to be done, but the actual costs of running the vehicle are not required.

Inland Revenue has reviewed the motor vehicle mileage rate and has changed it for the 2012 income year to 77 cents per kilometre for both petrol and diesel fuel vehicles. This rate does not apply to motor cycles.

It is appropriate to use this rate to reimburse staff for travel, or to on-charge mileage to customers with this rate.

There are other options for recording/claiming travel costs and if you would like some help with this, please
contact us.

Are Casual Employees Really Casual?

Its easy to fall into the situation where you employ someone on a casual basis to meet a need of the business with all intentions of it being a short time i.e. in a peak period.

But time flies and we are all busy that sometimes it never gets re-looked at.

The employee is happy - they have continuous regular income. You are happy, the initial need is being met and your focus is now on other things. So where's the problem you might ask?

The problem comes when there is disagreement between the employee and the business or when you try end the "casual contract". If the employee takes the claim to the courts, the court would look at "substance over form" ie the actual working pattern and payments will outweigh the written contract.

Some pointers to consider when deciding what type of employment is being offered:

Employment of a permanent nature is:
  • predictable and consistent work pattern
  • mutual employment obligations ie obligation of employer to provide work and the expectation of employee to be paid.
  • routine inclusion in a roster of work prepared in advance
  • exclusion of 8% holiday pay from wages
  • leave application approval required
Casual employment is:
  • irregular in engagement
  • employer does not justify why an employee is needed
  • no expectation for work from either employee/employer beyond current employment.
Fixed Term contract:
  • set hours and day of work for predetermined time
  • related to specific project or event (eg cover maternity leave)
  • comes to an end for a specific reason which must be given to the employee
  • creates predictibility and reliability for both employee and employer
Businesses need to review their casual contracts periodically and ensure that the type of employment is consistent with the contract. I've just realised that a "casual" staff has been with me on set days & hours for more than a year.

I'd better write up a permanent employment contract (from the department of labour employment agreement builder) so that the expectations between myself and my staff are recorded and recognised. Rather fix it now than have a problem later. We are not all perfect but we can fix our mistakes before they become a problem ...