Earlier this year, Inland Revenue (IRD) released an officials’ issues paper titled “Fringe Benefit Tax – Options for Change”. The paper sought feedback on potential reforms to the FBT regime, the most notable proposals related to the application of FBT to motor vehicles, particularly utes. In the May 2025 Budget, the Government signalled support for the reforms. However, the Government later backed away from some of the proposed changes, most notably, those relating to utes.
What has changed
Draft legislation has now been introduced to Parliament, and the changes are more in the nature of ‘tweaks’, as opposed to structural reform. The more notable changes are outlined below.
Gift cards: currently, general practice is to treat gift cards as an unclassified benefit and subject to FBT. FBT applies to unclassified benefits unless a de minimis exclusion applies. That exclusion provides FBT is only payable on an unclassified benefit provided in a quarter if:
- The total value of all benefits provided to that particular employee exceeds $300
- The total value of all benefits provided to all employees over the past four quarters (incl. the current quarter) exceeds $22,500
However, confusion arose after IRD published the view that PAYE applies to certain ‘open loop’ gift cards, and not FBT. An open-loop card is a general-purpose prepaid gift card, like a Prezzy card, that can be used at a number of different retailers.
From 16 April 2025 employers will be able to choose whether gift cards are subject to FBT or PAYE, and for FBT purposes they will comprise a “classified” fringe benefit and therefore no longer qualify for the de minimis exclusion. This change will mean tax will apply to the provision of gift cards to employees, whether under FBT or PAYE, and the de minimis exemption will no longer apply.
What this means for your business
Frustratingly, this change is being backdated and therefore tax may need to be accounted for retrospectively if FBT has not been accounted for on the understanding that the de minimis applied. A practical option is to complete a wash-up in the Q4 FBT return, but hopefully the effective date will be changed or IRD will comment specifically on this point and what it considers an acceptable approach.
Reimbursements: where an employer reimburses an employee for costs that would have been an unclassified benefit if paid directly by the employer, the employer can choose whether to treat the payment as subject to PAYE or FBT. This change will be effective from 1 April 2026. This option will only apply to unclassified benefits, not to classified benefits such as health insurance.
Global insurance policies: from 1 April 2026, a proposed amendment will give employers more flexibility in how they account for FBT on Global insurance policies.
The Bill clarifies that where companies have insurance policies covering a number of employees with the same or similar entitlements, the cost can be treated as a pooled benefit or allocated to employees by dividing the total contribution across the group.
How We Can Help
Navigating changes to FBT rules can be complex, especially when they have retrospective implications. At Moore Markhams, our purpose is to help people thrive by providing clear, proactive tax guidance. Our advisors can help you understand how these tweaks to gift cards, reimbursements, and global insurance policies will affect your business.
We will work with you to review your current practices, ensure you are compliant with the new legislation, and help you plan for any retrospective adjustments that may be needed. By partnering with us, you can be confident that you are meeting your obligations, allowing you to focus on what matters most, running your business. Let’s connect to ensure you are prepared for these changes.
