In April 2025, IRD issued an Official’s Issue Paper requesting public consultation on their proposed changes to the fringe benefit tax (FBT) rules.

Since we are still in the early stages, we expect many technical changes to the rules outlined in the Issue Paper. The paper also presents multiple alternatives. However, an IRD Issue Paper signals the possible direction of potential changes to the law.

Some of the proposed changes are outlined below:

Motor Vehicles

  • Increase the maximum weight of motor vehicles subject to FBT. This change is really to keep up with modern vehicles so is unlikely to be a big impact.
  • Remove the tax value of the vehicle as a valuation method. Only the cost method would be available. The cost method was generally more favourable for the first few years of ownership and so was the method used by most taxpayers.
  • Optional rates for types of vehicles
    • Standard rate for petrol or diesel vehicles
    • Rate for hybrid vehicles
    • Rate for full electric vehicles
  • Remove the work-related vehicle and emergency call out exemption (now covered by proposed actual use approach).
  • Changing the availability test to one that aims to better reflect actual use of the vehicle by providing FBT rates depending on the vehicle’s category.

 The categories proposed are:

Category Use FBT
1 Vehicle predominantly available for private use (effectively no restrictions)  100%
2 Vehicle predominantly for business use (restricted private benefit i.e. daily commute to and from work) 35%
3 Vehicle solely for business use (either a restriction or impossible to derive a private benefit from the vehicle) 0%

The combination of removing the work-related vehicle exemption and adding a new actual use test could be a significant change. Essentially all vehicles which can be taken home would now have FBT on 35% of the value of the benefit.

Previously some of these vehicles that were otherwise not available for private use would have had no FBT.

  • Major (>25%) shareholder-employees can use any category but imposes a vehicle value limitation of $80,000.
  • Records must be kept proving that the categorisation of a car is appropriate, but day count test will no longer be required. No more logbooks.

Entertainment

  • Remove the 50% entertainment rules.

 Treat all entertainment as non-attributable benefits and tax as a pooled unclassified fringe benefit. This would be a significant cost to taxpayers. By taxing the full amount of entertainment at 49.25% the net cost after tax to the employer of providing the entertainment will increase by 24.95% compared with the current 50% non-claimable portion.

  • Two options for defining entertainment subject to FBT:
    • Applying a de minimis threshold (either a new $200 per benefit or the $300 per quarter and $22,500 annually), OR
    • Treat all food and beverages as exempt unless at a party, social function, or celebration.
  • The portion of entertainment that is enjoyed by non-employees will also be taxed under this approach and as a result employers will pay more FBT.

Submissions on the proposed changes have closed and there are likely to be changes once the submissions are reviewed. We will keep updates coming as they develop.