Fringe Benefit Tax Changes
- Business Studio
- Apr 6
- 6 min read
Changes to the FBT Rules – What employers need to know
From 1 April 2026 several changes have been made to Fringe Benefit Tax (FBT) which are now in full force.
The changes are designed to introduce more flexibility and remove several grey areas on how benefits can be treated.
We recommend if you haven’t stopped to contemplate your exposure to FBT in recent times, that you complete our Health Check Questionnaire. If you answer Yes or Unsure to any question we recommend a more detailed review from your Business Studio Innovators team.
Specific changes include:
Gift Cards
Employers have been given the option to either apply FBT rules to "open loop" gift cards or treat them as employment income subject to PAYE.
This change was made retrospectively and applies to benefits provided on or after 16 April 2025.
Equalisation of FBT and PAYE for Reimbursements
Employers now have the option to apply FBT or PAYE when reimbursing an employee for an expense that would have been an unclassified benefit if the employer had provided it directly.
This applies to benefits provided on or after 1 April 2026.
Motor Vehicles and Investment Boost
The FBT valuation rules for motor vehicles have changed where Investment Boost has been claimed. Under the cost price method, Investment Boost is not deducted from the vehicle’s cost price. Under the tax book value method, vehicles where Investment Boost has been claimed have separate valuation rates and must be pooled separately from other vehicles.
This change takes effect for benefits provided in quarters on or after 1 April 2026.
Global Insurance Policies
New options have been introduced for employers to account for FBT on global insurance policies. They can either apportion the total contribution across the covered employees or treat the payment as a pooled (unattributed) benefit subject to the applicable pooling rate.
This applies for FBT quarters commencing on or after 1 April 2026.
Remedial Change to FBT Thresholds
A retrospective amendment was made to correct a legislative reference to a previous FBT threshold, ensuring it aligned with consequential changes made following adjustments to personal income tax thresholds.
This applies retrospectively from 1 April 2025.
Back-Dated Changes - New Gift Card Rules
There has been a common practice of gift cards being treated as fringe benefits.
Legislation was enacted in March 2026 which accepts this treatment. That is, for gift card benefits provided on or after 16 April 2025, employers have the option to treat all gift cards (including "open loop" cards redeemable at multiple retailers) as fringe benefits subject to FBT, rather than as salary or wages subject to PAYE.
Where you have had the practice of treating gift cards as fringe benefits (and not as remuneration) then you now have an obligation to file an FBT Return. The gift card is treated as an unclassified benefit for FBT. This means its value is combined with any other unclassified benefits provided to the employee. In many instances you will be below the threshold requiring FBT to be paid, but it is mandatory to file the FBT return (even if NIL).
Practical Example:
An employer files FBT annually.
In the 2026 tax year just ended, the employer had given to an employee:
A $500 Prezzy card for their birthday.
A hamper worth $400 for Christmas.
The employer opts to treat the Prezzy card under the FBT rules.
The total value of unclassified benefits for this employee for the year is $900 ($500 + $400).
This total is below the $1,200 annual per-employee threshold.
Assuming the employer has not exceeded the separate $22,500 total employer threshold for the year, no FBT will be payable on these benefits for this employee.
Based on the example provided, where the total value of unclassified benefits for the employee is $900 for the year, no FBT is payable. This is because the amount is below the $1,200 annual per-employee threshold, and we assume the separate $22,500 total employer threshold is also not exceeded.
Even though no tax is due, you must still file a nil FBT return.
Implications: If you don’t want to take the time to file a nil FBT return, then the gift card would need to be treated as a cash bonus to the employee and grossed up for tax in your payroll system. The grossed-up value is included in the employee's earnings for calculating student loan repayments, KiwiSaver contributions, and Working for Families tax credits.
Motor Vehicles – Where the exemptions are most often misunderstood
Motor vehicles remain one of the most common areas where employers can unintentionally create an FBT exposure.
As a starting point, FBT can apply when a business makes a vehicle available for an employee’s private use. This includes shareholder-employees. The focus is on whether the vehicle is available for private use, not just whether private use actually occurs.
There are exemptions, but they need to be applied carefully. In particular, not every “business vehicle” will qualify as a work-related vehicle for FBT purposes.
To rely on the work-related vehicle exemption, the vehicle must meet the relevant requirements. These include restrictions on private use, appropriate business identification, and record-keeping. Employers should also complete regular checks to confirm the vehicle is being used within the restrictions.
It is also important to be careful with home-to-work travel. In many tax contexts, travel between home and work is treated as private. However, for FBT purposes, a work-related vehicle can still qualify for the exemption where home-to-work travel is necessary and a condition of employment, provided the other requirements are met.
Vehicles over 3,500kg should not be assumed to be outside the FBT rules. The work-related vehicle exemption applies to vehicles with a gross laden weight of 3,500kg or less. Private use of heavier vehicles may still create an FBT exposure, potentially as an unclassified benefit.
For a vehicle to qualify as a "work-related vehicle" on any given day, it must meet all of the following requirements:
It must be a motor vehicle with a gross laden weight of 3,500 kilograms or less.
The employer's name, logo, or other regular form of business identification must be permanently and prominently displayed on the vehicle's exterior.
The vehicle must not be a "car," which is defined as a vehicle designed exclusively or mainly to carry people.
The vehicle must not be available for private use, except where home-to-work travel is necessary and a condition of employment, or where any private travel is incidental to business travel.
From 1 April 2026, there are also changes to how some motor vehicles are valued for FBT where Investment Boost has been claimed. The treatment depends on the valuation method used. Under the cost price method, Investment Boost is not deducted from cost price. Under the tax book value method, vehicles where Investment Boost has been claimed are subject to specific valuation rules and rates, and must be pooled separately from other vehicles.
The practical message is that employers should not assume a vehicle is exempt simply because it is used mostly for work, stored at home for convenience, sign-written, or only used privately in a minor way. The correct treatment depends on availability, restrictions, vehicle type, records, and the valuation method used.
Home to Work Travel
IR view that travel using motor vehicle between home and work is private.
There are four exceptions (which have record keeping requirements to satisfy the exception):
The vehicle is necessary for the transportation of essential equipment or goods.
The taxpayer’s work is itinerant.
The taxpayer is responsible for responding to emergency calls from home and their responsibility for the outcome of the call begins before they leave home.
The taxpayer’s home is a workplace or base of operation.
Home to Work Minor Travel
We often hear from clients that private travel is minor or inconsequential in the scheme of things.
IR hold a very different opinion.
Minor private travel can not exceed both of the following:
approximately 5% of the journey, and
approximately 2 km.
As soon as a trip is considered to have a private component there is either an FBT obligation or a private apportionment requirement (including for shareholder-employees).
Registering for FBT
If you aren’t already registered for FBT then there are a number of different options available from quarterly, annual, and income year filing.
The income year filing option gives you a longer filing period than the annual return which is 31 May.
If on reading this article you decide that you need to retrospectively register for FBT (i.e. 1 April 2025), don't be surprised if IR ask why, because they will.
Meeting your tax obligations
FBT is complex. It takes time to review what benefits you have provided to your team. If you refer to the FBT Guide each time then you need to know that IR have updated the Guide.
Alternatively, we can review and complete the FBT Return on your behalf or compile documentation to ensure you are discharging your obligations.
Please reach out to us if you would like us to prepare the return, review of your exposure, or be your accountability partner for quarterly checks.
Disclaimer: The information provided in this article is general in nature and does not constitute personalised tax advice. You should consult with Business Studio before making decisions based on this content.
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