Providing insurance benefits such as health, life, or income protection is a smart way to attract and retain great people. However, these benefits come with Fringe Benefit Tax (FBT) implications that are often misunderstood and, if left unchecked, can lead to costly surprises.
FBT applies to non-cash benefits provided to employees in connection with their employment. In New Zealand, employer-paid insurance premiums will generally fall within the FBT regime, depending on how they are structured.
Which insurance benefits are subject to FBT?
One of the most common areas of confusion is whether an insurance benefit should be treated under FBT or through payroll.
In most cases, it comes down to who owns the policy:
- Employer-owned policies
Where the business holds the policy and pays the premiums for the employee’s benefit, such as group health or life insurance, these are typically subject to FBT. - Employee-owned policies
If the policy sits in the employee’s name and the employer reimburses the cost or pays the premium on their behalf, this is generally treated as an unclassified fringe benefit or, in some cases, additional salary/wages and therefore subject to PAYE.
Key categories to watch
- Health and medical insurance
Employer-funded private health insurance is a classic example of a fringe benefit and will usually attract FBT. - Life and accident insurance
Where the benefit is payable to the employee’s family or estate, the premiums are typically subject to FBT.
How the FBT process works
Managing FBT effectively comes down to three key steps:
- Classification
Determine whether the benefit falls under FBT or PAYE. - Calculation
Apply the appropriate calculation method. For insurance, this is commonly the single rate (63.93%) or the alternate rate method, which can better reflect employees’ actual income levels and prevent overpaying. - Filing
FBT returns are typically filed quarterly or annually depending on the size of your business.
Why record-keeping matters
Strong records are critical. You need to clearly track which employees are receiving which benefits and how those benefits are treated.
This is particularly important for unclassified benefits, where multiple perks such as insurance, gym memberships, and gifts can quickly exceed the $300 per employee per quarter de minimis threshold.
This is an area Inland Revenue monitors closely.
Key timing and deadlines
- Quarterly filers: Returns and payments are generally due 20 days after the end of each quarter
- Annual filers: Deadlines typically align with your income tax obligations
It’s important to note that failing to file on time or misclassifying a premium can lead to use-of-money interest and penalties.
Common FBT mistakes we see
- Assuming some benefits are exempt when they are not
For example, gym memberships are often treated as exempt under health and safety. Inland Revenue takes a strict view. Unless there is a direct workplace requirement, these are usually considered taxable lifestyle benefits. - Getting policy ownership wrong
This is one of the most frequent triggers for Inland Revenue queries. If the employer owns the policy, FBT applies. If the employee owns the policy, PAYE treatment is likely.
Getting this wrong can quickly lead to reassessments and requests for further information from the IRD.
Get the right advice
FBT on insurance does not need to be complicated, but it does need to be correct.
Whether you are introducing a new employee benefit or want confidence that your current treatment stacks up, getting the right advice early can save time, cost, and risk down the track.
If you would like to review how FBT applies to your specific insurance arrangements, or need support with the calculation process, please get in touch with one of our team.