The proposed changes to the Fringe Benefit Tax (FBT) by Inland Revenue, dubbed 'Ute Tax 2.0' by Federated Farmers, could significantly impact New Zealand farmers and other small business owners. These changes aim to simplify the FBT system and address a long-held misconception that utes are entirely exempt from FBT. The new rules are part of a broader effort to ensure fairness and compliance in the tax system. ### Key Points of the Proposed Changes: 1. **Categorization of Vehicles:** - **Category 1 (Full FBT):** Vehicles used for regular personal use, including weekend use, will fall into this category, attracting 100% FBT. The FBT rate depends on the employee's income, with the most common rate being 49.25% for incomes between $78,100 and $180,000, and 63.93% for incomes over $180,000. - **Category 2 (Reduced FBT):** Vehicles used for incidental personal use will attract a lower rate of FBT. For example, a Category 2 EV would attract a much lower FBT compared to a petrol or diesel vehicle in Category 1. - **Category 0 (No FBT):** Vehicles used exclusively for business purposes will not attract any FBT. This category is open to all vehicle types, not just utes. 2. **Impact on Farmers:** - Federated Farmers has expressed concern that the changes will cost farmers thousands of dollars annually. The current misconception that utes are FBT-free is being corrected, and farmers who use utes for personal use, especially on weekends, may now be liable for FBT. - The changes are not intended to target farmers specifically but to address a broader issue of non-compliance with FBT rules. The IRD has emphasized that the proposals are fiscally neutral, meaning some people may pay more while others pay less. 3. **Clarifications and Misconceptions:** - **$80,000 Threshold:** There is a false narrative that any vehicle priced above $80,000 is automatically subject to full FBT. This is incorrect. The threshold is a guideline to prevent manipulation of vehicle use to avoid FBT on luxury vehicles. - **Work-Related Accessories:** Adding work-related accessories to a vehicle does not automatically subject it to full FBT. The key factor is the extent of personal use, not the vehicle's total cost. 4. **Compliance and Compliance Costs:** - The proposed changes aim to reduce compliance costs for employers by eliminating the need to track every instance of non-work vehicle use. Employers will no longer have to meticulously document each use of a vehicle for personal purposes. - The IRD has acknowledged that the changes are a work in progress and subject to further refinement based on feedback received during the consultation period. 5. **Timeline and Implementation:** - The final proposals will be discussed with the Cabinet, and the changes could be included in a tax bill scheduled for August 2025. If implemented, the provisions would come into effect from April 1, 2026. - The changes will be subject to further submissions and possible modifications during the select committee process. ### Conclusion: The proposed FBT changes are designed to simplify the tax system and ensure fair compliance. While farmers and small business owners may face new FBT obligations, the changes are not intended to target them specifically. The IRD has emphasized that the proposals are fiscally neutral and aim to address a broader issue of non-compliance. As the changes move through the legislative process, it is important for businesses to stay informed and prepare for potential adjustments to their tax obligations.