Increased threshold for annual FBT returns from $500,000 to $1 million of PAYE/ESCT

(Clauses 90 and 91)

Summary of proposed amendment

The bill proposes that the threshold for calculating and returning FBT on an annual basis be increased from $500,000 to $1 million of PAYE/ESCT. This will reduce compliance costs for taxpayers.

Application date

The proposed amendment will apply for the 2017–18 and later income years.

Key features

Proposed amendments to sections RD 60 and RD 61 of the Income Tax Act 2007 will increase the threshold for calculating and returning FBT on an annual basis. The new threshold will be $1 million of gross tax for PAYE income payments and employers’ superannuation cash contributions withheld under sections RA 5(1)(a) and (c).

Background

Most businesses are required to calculate and return FBT on a quarterly basis. However businesses that have combined PAYE and ESCT obligations of no more than $500,000 per year are currently allowed to calculate and return FBT on an annual basis. As a smaller business becomes larger and employs more staff, it may exceed the $500,000 threshold. Consequently the business will be required to calculate and pay FBT on a quarterly basis. This can impose compliance costs that are still significant compared with the size of the business.

Allowing a business with combined PAYE and ESCT of between $500,000 and $1 million to continue accounting for FBT annually will simplify its compliance obligations and lower compliance costs. It will also simplify administration, as there will be fewer FBT returns for Inland Revenue to process.