The 2026 budget proposes changing the way fringe benefit tax (FBT) is charged on motor vehicles. The current method charges FBT on each day that a motor vehicle is available for private use. There are some exemptions from FBT such as for work-related vehicles and emergency callout days.
The proposed changes would introduce new vehicle categories based on the nature of the employee’s use of the motor vehicle. Each category provides a fixed percentage that acts as a substitute for the employee’s actual private use days. The new categories would take a “close enough is good enough” approach. The private use percentage for the six proposed categories range between 100%, 35%, 20% and 0%.
Below is a summary of IRD’s proposed motor vehicle categories:
| Category | Limitations on use | Inclusion rate |
| 1 - full private use | Vehicle mainly for private use (perk vehicles). Included in remuneration package. Access by others during business hours ignored. Branding not required. | 100% |
| 2 - partial private use | Mainly business use. Private use allowed on days off, public holidays, statutory leave, and commuting. Vehicle must be branded. | 35% |
| 2b - limited private use farm vehicles | Mainly business use supporting farming. Private use allowed when not working. Must be owned by closely held farming company and used by shareholder-employee. Branding not required. | 35% |
| 3 - minor private use (single worksite) | Business use only. Private use limited to commuting to/from same worksite. May be used by others for business. Must be branded. | 20% |
| 4 - minor private use (multiple worksites) | Business use only. Private use limited to commuting where work involves multiple worksites. Must be branded. | 0% |
| 4b - no private use (pool car) | Exclusively business use (other than incidental). Not allocated to one employee. Branding not required. | 0% |
These changes would remove existing exemptions such as the work-related vehicle exemption. A new emergency vehicle exemption is proposed that removes them from the FBT regime.
The new categories are still proposed law and subject to change. The proposed changes, if enacted, would apply to benefits provided after 1 April 2027. If you would like to discuss what the new categories might mean for you or have any other general FBT queries, please contact one of the team.