The tax benefits of "9 to 5" or "flip" leases were phased out by the IRD nearly two years ago but avoiding FBT on motor vehicles is still a very popular question.
The main alternatives for shareholder-employees are:
- Charge the equivalent value of the FBT to your current account. This is good but you are creating taxable income for the company and it is non-deductible for you.
- Cash allowances. These are treated as salary so are taxable. Not tax efficient.
- Reimbursement for a privately owned car using the tax free IRD rates is simple and effective.
- Reimbursement with AA or similar mileage rates. Also tax free and getting better, but not as clear cut as you might at first think and you still require regular salary payments.
- Tax free reimbursing allowances if the vehicle is individually owned. Here, the company can reimburse you for the actual costs incurred but only for revenue costs, not depreciation. Since depreciation is the highest cost by far of running a vehicle this is not tax efficient.
- Tax free reimbursing allowances if the vehicle is individually leased under an operating lease for tax purposes. Since the lease cost incorporates depreciation there can be significant tax benefits from the use of these leases and there are one or two additional strategies available as well. However, don't forget the commercial aspects of the lease.
As always, tax is complicated and there is no substitute for individual what-if calculations.
If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail firstname.lastname@example.org or use "Contact Us" on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.