Govt Seeks Public Input on Major Overhaul of 40-Year-Old Fringe Benefit Tax

The announcement, made by Revenue Minister Simon Watts, coincides with the 40th anniversary of the FBT’s introduction — a tax that has seen only minor tweaks since its inception in 1985.

In a significant move to modernise New Zealand’s tax system, the Government has launched a public consultation process to reform the outdated Fringe Benefit Tax (FBT) rules, aiming to reduce compliance costs and make the system more practical for businesses. The announcement, made by Revenue Minister Simon Watts, coincides with the 40th anniversary of the FBT’s introduction — a tax that has seen only minor tweaks since its inception in 1985.

Fringe Benefit Tax is levied on non-cash benefits provided by employers to employees or shareholder-employees. These benefits include interest-free or low-interest loans, subsidised goods and services, employer contributions to insurance or superannuation schemes, vehicles available for personal use, and other miscellaneous perks.

A Shift Toward Practicality

Minister Watts said the proposals have been designed with a strong focus on reducing the compliance burden for employers while maintaining the integrity of the tax system. Inland Revenue has been actively engaging with private sector experts, especially from the small business community, to shape the proposed reforms.

“One of the core suggestions being consulted on is to move away from an obsession with pinpoint accuracy and instead adopt a ‘close enough is good enough’ principle,” Watts stated. “This reflects the reality for many small and medium-sized businesses that currently face a high administrative burden in tracking and calculating FBT liabilities with extreme precision.”

Focus Areas of Reform

The consultation document centres primarily on simplifying the treatment of motor vehicles and other smaller fringe benefits, which are often the most complex and costly areas for businesses to administer under current rules. The Government is looking at streamlining valuation methods, easing record-keeping requirements, and modernising the framework to reflect how businesses operate today.

Key areas being examined in the consultation include:

• Simplified rules for valuing motor vehicles provided to employees

• Potential thresholds for exempting minor benefits from FBT

• Streamlined processes for small employers

• Reducing or eliminating some reporting and compliance obligations

• Clarity on the tax treatment of emerging benefit types, such as wellness programs and digital subscriptions

Broadly Fiscally Neutral Approach

While the reforms are aimed at reducing the time and cost associated with FBT compliance, the Government intends for the overall impact to be fiscally neutral. “This is not about giving away revenue — it's about ensuring the tax system works better and smarter, not harder,” said Watts.

Public Feedback Encouraged

The Government is urging employers, tax professionals, and other stakeholders to participate in the consultation. Feedback will be used to shape final proposals, which will be considered later this year. Inland Revenue has indicated that digital tools and updated guidance materials will likely accompany any legislative changes to assist with the transition.

“This is a rare opportunity to reshape a part of the tax system that touches thousands of businesses, particularly small and medium-sized ones,” said Watts. “We want to hear from as many voices as possible to ensure the rules are fair, practical, and fit for a modern economy.”

The consultation document is now available on Inland Revenue’s website, and submissions will be open for several weeks. If implemented, these reforms could mark the most substantial overhaul of the Fringe Benefit Tax system in four decades.

What’s Next?

• Public submissions are open until [submission deadline to be confirmed]

• Final policy proposals expected to be presented to Cabinet later in 2025

• If approved, legislative changes could be introduced in 2026

Businesses interested in making a submission or learning more can visit the [Inland Revenue website] or speak to a tax advisor.