Fringe Benefit Tax on Motor Vehicles: Complexity and Compliance Costs

Heather Buchan, Manukau Institute of Technology
Karin Olesen, AUT University
Helen Carberry, Manukau Institute of Technology

Abstract: Fringe Benefit Tax is a tax on non-cash benefits provided by employers to employees, including shareholder-employees within New Zealand. The tax is levied on employers, rather than employees, to make the collection process more efficient for the Inland Revenue Department, and to encourage a shift to remuneration in cash rather than other forms of payment. A qualitative case study of various businesses providing a fringe benefit of vehicles and applying fringe benefit tax provisions was undertaken to see if the businesses are legally compliant. The study found the fringe benefit tax provisions were not well complied with. They involved large compliance costs for businesses that may not be paying the correct amount of fringe benefit tax. Prior literature suggests that fringe benefit tax policies do not significantly influence the provision of fringe benefits. This paper examines the complexity of the fringe benefit tax regime given its high compliance cost.