Short-term change facilities and FBT

Sections CX 25 and RD 39 of the Income Tax Act 2007

Background

Charitable organisations are generally exempt from fringe benefit tax on benefits provided to their employees. Currently, one exception to this exemption is when the charitable organisation provides a benefit to an employee by way of a short-term charge facility, and the value of the benefit for the employee in a tax year is more than 5% of the employee's salary or wages for the tax year.

Various arrangements have been offered to employees of charitable organisations which involve the provision of vouchers instead of salary, which has raised the question of whether a voucher constitutes a "short-term charge facility".

Key features

Two changes have been made to section CX 25 of the Income Tax Act 2007.

• The first change amends the threshold above which the benefit provided under a short-term charge facility will be a fringe benefit.
• The second change clarifies that items such as vouchers are capable of being short-term charge facilities.

A consequential change has been made to paragraph CX 25(3)(b).

A consequential change has also been made to section RD 39.

Detailed analysis

Other income (business income)

The first change is to subsection CX 25(2) and ensures that the exemption threshold is set at a level that recognises potential compliance costs but protects the revenue base. The current threshold is 5% of the employee's salary or wages for the tax year. The revised threshold means that a fringe benefit will arise if the aggregate value of the short-term charge facility benefits provided by the charitable organisation to the employee in a tax year is more than the lesser of:

• 5% of the employee's gross salary or wages for the tax year, or
• $1,200.

The second change is to paragraph CX 25(3)(a). It clarifies that an arrangement which enables an employee to obtain goods or services which have no connection with their employer or their employer's operations by providing consideration other than money for the goods or services can constitute a short-term charge facility. Previously, the provision only referred to arrangements which enable the employee to obtain such goods or services by either buying or hiring those goods or services, or by charging the cost of the goods or services to an account.

The change to paragraph CX 25(3)(b) is intended to clarify that an employer who provides payment or other consideration for the goods or services can do so at any time. This amendment was in response to submissions which questioned whether there could be any liability placed on the employer (the current wording) if, for example, an employer had already paid for a short-term charge facility before providing it to an employee.

Application date

The amendments apply from 1 April 2014.