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Income Tax Act 2007

Income - Excluded income - Fringe benefits

CX 17: Benefits provided to employees who are shareholders or investors

You could also call this:

“Rules for taxing non-cash benefits given to employee shareholders or investors”

When a company or group investment fund gives something other than money to an employee who owns shares or has investments in the fund, it’s treated as if it was given as part of their job. This applies even if the employee owns the shares or investments themselves or through someone else.

The company or fund can choose to treat this non-cash benefit as either a fringe benefit or a dividend. If they don’t choose, it’s automatically a fringe benefit. If they choose to call it a dividend, the fringe benefit tax rules don’t apply.

These rules don’t apply to non-cash benefits given to non-executive directors of a company.

There’s a special rule for close companies (companies with few shareholders) that let employees use a company car for personal reasons. If this is the only or one of two benefits the company gives to all employees in a year, the company can choose to use different tax rules instead of the fringe benefit ones.

The company or fund must tell the tax department about their choice within the time they have to file their fringe benefit tax return for the period when they gave the benefit.

For close companies choosing the special car rule, they must tell the tax department within the time they have to file their income tax return for the year they made the choice.

In some cases, the company might have to treat a benefit under this section as a dividend because of rules in another part of the tax law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513367.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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“Employer-paid life and health insurance is a job benefit”

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“Tax rules for benefits given to people connected to both employees and company owners”

Part C Income
Excluded income: Fringe benefits

CX 17Benefits provided to employees who are shareholders or investors

  1. If a company or a trustee of a group investment fund provides a non-cash benefit to an employee who holds shares in the company or who is an investor in the fund, the benefit is treated as having been provided in connection with the employment. The shares or investment may be held in the employee’s own right or beneficially.

  2. A company or a trustee of a group investment fund that has provided a non-cash benefit to an employee who holds shares in the company or who is an investor in the fund may choose to treat the benefit as a fringe benefit or a dividend. If the company or trustee does not make an election, the benefit is treated as a fringe benefit. If the company or trustee chooses to treat the benefit as a dividend, the FBT rules do not apply.

  3. Neither subsection (1) nor subsection (2) applies to a non-cash benefit provided by a company to a non-executive director of the company.

  4. Subsection (2) applies to non-cash benefits that would,—

  5. in the absence of section CD 32 (Employee benefits), be dividends under section CD 4 (Transfers of company value generally) if provided to a person in their capacity as a shareholder; and
    1. in the absence of section CX 4, be unclassified benefits if provided to a person in their capacity as an employee.

      1. Despite subsection (4), subsection (2) does not apply and the benefit is neither a fringe benefit nor a dividend in an income year if—

      2. the benefit—
        1. arises when a close company makes a motor vehicle available to a shareholder-employee for their private use; and
          1. would, in the absence of this subsection, be a fringe benefit arising under section CX 6; and
          2. the total benefits the close company provides to all employees in the income year are 1 or 2 of the benefits described in paragraph (a); and
            1. the close company chooses to apply subpart DE (Motor vehicle expenditure) for the motor vehicle and the shareholder-employee instead of the FBT rules.

              1. An election by a close company under subsection (4B) may be made for the income year which includes the day on which the close company—

              2. acquires the motor vehicle; or
                1. first starts using the motor vehicle for business use.

                  1. An election under subsection (4B) applies for the income year described in subsection (4C), and continues to apply until the end of the income year that includes the earlier of—

                  2. the day on which the close company stops using the motor vehicle for business use; or
                    1. the day on which the close company disposes of the motor vehicle.
                        1. Notes

                        • The company or trustee must give notice to the Commissioner of the election referred to in subsection (2) in the time allowed for filing a fringe benefit tax return for the period in which the benefit was provided.

                        • The close company must give notice to the Commissioner of an election referred to in subsection (4B) in the time allowed for filing a return of income for the income year in which the election was made.

                        • Section DG 2(4) (Application of this subpart) may apply to require a company to treat a benefit under this section as a dividend.

                        Compare
                        Notes
                        • Section CX 17(3) heading: replaced, on (applying for the 2017–18 and later income years), by section 68(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(4)(a): amended, on , by section 101 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                        • Section CX 17(4)(a): amended (with effect on 1 April 2008), on , by section 17(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                        • Section CX 17(4B) heading: inserted, on (applying for the 2017–18 and later income years), by section 68(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(4B): inserted, on (applying for the 2017–18 and later income years), by section 68(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(4C) heading: inserted, on (applying for the 2017–18 and later income years), by section 68(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(4C): inserted, on (applying for the 2017–18 and later income years), by section 68(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(4D) heading: inserted, on (applying for the 2017–18 and later income years), by section 68(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(4D): inserted, on (applying for the 2017–18 and later income years), by section 68(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(5) heading: amended, on (applying for the 2017–18 and later income years), by section 68(3) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(5B) heading: inserted, on (applying for the 2017–18 and later income years), by section 68(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(5B): inserted, on (applying for the 2017–18 and later income years), by section 68(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17(6) heading: inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on , by section 20(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                        • Section CX 17(6): inserted (with effect on 1 April 2013 and applying for the 2013–14 and later income years for an item of property referred to in section DG 3(2)(a)(i), and for the 2014–15 and later income years for an item of property referred to in section DG 3(2)(a)(ii) and (iii)), on , by section 20(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                        • Section CX 17 list of defined terms business use: inserted, on (applying for the 2017–18 and later income years), by section 68(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17 list of defined terms close company: inserted, on (applying for the 2017–18 and later income years), by section 68(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17 list of defined terms income year: inserted, on (applying for the 2017–18 and later income years), by section 68(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17 list of defined terms motor vehicle: inserted, on (applying for the 2017–18 and later income years), by section 68(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17 list of defined terms return of income: inserted, on (applying for the 2017–18 and later income years), by section 68(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                        • Section CX 17 list of defined terms shareholder-employee: inserted, on (applying for the 2017–18 and later income years), by section 68(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).