Revenue Minister Simon Watts has asked tax officials to work to remove a perceived tax incentive for double-cab utes as part of a larger re-working of fringe benefit tax (FBT).
In a briefing released to Newsroom under the Official Information Act, the Inland Revenue Department (IRD) laid out two options for Watts regarding changing FBT rules: A “light touch” approach focused mainly on utes or a “reimagining” of the system.
A spokesperson for Watts said the minister had asked officials to undertake both, “to see what short-term and then long-term options could be looked at”.
Fringe benefit tax is charged on non-cash benefits employees receive. This usually takes the form of company cars, subsidised transport or low-interest loans. The application of FBT ensures people aren’t granted benefits as a way to get around paying income tax.
The system does allow exemptions for work-related vehicles, which can’t be passenger cars and must have company branding. This is commonly perceived as exempting all double-cab utes with company branding from FBT, but the rules are clear that the tax should apply if the vehicle is used for personal transport.
Anecdotally, the practice of purchasing double-cab utes for personal purposes without paying fringe benefit tax is widespread. Tax expert Terry Baucher relates a story from a tax conference under the previous government, where then-revenue minister Stuart Nash was greeted by an attendee who said, “Welcome to the South Island, where we don’t pay FBT on company vehicles”.
In a previous briefing to then-minister David Parker, also obtained under the Official Information Act, IRD officials acknowledged there was an “implicit bias towards double-cab utes” as a result of the current rules which “may have helped in creating the common misconception, even among some tax commentators, that double-cab utes are entirely exempt from FBT”.
A rough estimate, premised on the assumption that 30 percent of double-cab utes exempted from FBT shouldn’t be, suggested the IRD is missing out on nearly $100 million a year from the law not being applied properly.
The more fulsome “reimagining” of the FBT rules will, among other things, look at options to “broaden the FBT base by removing inconsistent exemptions such as the perceived exemption for double-cab utes”.
This could take 18 to 24 months, officials advised Watts.
“Last year Inland Revenue completed a regulatory stewardship review on Fringe Benefit Tax which identified some issues with the way in which FBT operates. I am keen to make some changes to simplify FBT and enhance compliance in this area. I have asked officials to look at some options and report back to me later this year,” Watts told Newsroom.
Baucher, the tax expert, said the work-related vehicles rules were “problematic”.
“I think it’s a misunderstood exemption and the advent of the twin-cab ute has rather amplified the confusion around that.
“When they were looking at this exemption, the twin-cab ute basically did not exist. If you had a ute, it was used for business and you could travel in it but it was primarily for carrying your tools around. The rules were developed 30-odd years ago and they haven’t had much change done since then.”
The perceived blanket exemption for double-cab utes has led to a proliferation of the vehicles by service companies, rather than tradies, Baucher said.
“You might be thinking, how work-related is that for an advertising agency or some form of consultant, who doesn’t appear to be directly tied to what you might call a trade industry or need to carry tools in their vehicle.”
No wonder there are so many of these great polluting potholers around particularly in rural areas!
About time the Ute subsidy is finally going. Strange that farmers and Tradies were never pulled up about their annual subsidy when they were raging about the one off clean car discount. Now the same moaners are blaming road damage on EVs, saying they weigh more than other cars, ignorant of the fact their utes and massive SUVs are even heavier. Need to remove the fuel excise from petrol and charge every vehicle RUCs with appropriate weight banding, including upping charges on heavy road freight which cause most of the road damage.
Agreed about everything except RUC for all. Poorer folks don’t have a spare $760 lying around and RUC ignores fuel efficiency – it’s just distance based. Introduce a new weight band for vehicles under 3 tonnes at $50 per 1000km, so that EVs don’t pay twice the road tax as equivalent petrol cars.