Waikato Business News November/December 2016

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52 WAIKATO BUSINESS NEWS November/December 2016 The Devil is in the detail It is rare for highly valued employees to be remunerated solely in cash. Typically, a ‘remuneration package’ includes a combination of cash and non-cash incentives. Non-cash incentives inherently give rise to the potential imposition of fringe benefit tax (FBT) and one of the most common forms is the private use of a vehicle. FBT on vehicles is neither new nor rare. However, we invariably encounter errors in FBT calculations due to the murky and complicated nature of the rules and principles that apply. One of the fundamental starting points to keep in mind is that FBT is merely a proxy for PAYE. The FBT rates are a ‘gross up’ of a net salary/ wage amount, ie. $100 @ 33% = $33 of tax, so a fringe benefit value of $67 @ the FBT rate of 49.25%, also equals $33. If I were to digress, I would suggest that we get rid of FBT completely and suggest it is simply included within the PAYE return, on a gross up basis. But I won’t deviate, let’s stay on track. Your most likely thought is, ‘how can I minimise my FBT liability on vehicles provided to employees?’ But this shouldn’t be your starting point. 30098 The important question is, when vehicles are provided to employees, how much private use do you want them to have? It should then be a case of practically restricting a vehicle’s use to that level, and that drives the amount of FBT payable. The concept of being ‘available for private use’ can be misleading. The key thing to remember is that if a vehicle is available to an employee for private use, FBT is payable whether or not the vehicle is actually used. By definition, if a vehicle is used for home to work travel that will be captured as private use. However, if a vehicle qualifies as a "work related vehicle", that same travel from home to work is not considered private use. To qualify as a work-related vehicle it can’t be designed to principally carry passengers (eg. a Ute will qualify as a work related vehicle). The name of the employer’s business also needs to be identified permanently and obviously on the vehicle’s exterior (eg. sign written). A common error is to treat a sign written sedan that is never used to carry passengers as a work-related vehicle. Finally, it needs to be a condition of employment that the employee stores the vehicle at home. Restrictions on private use should be agreed in writing and monitored to avoid FBT. For example, if an employee is restricted from using a work-related vehicle at the weekend, then the employer should periodically take the odometer reading on Friday afternoon and Monday morning, the difference should be the distance from work to home, and back. If documentation is put in place, but it is found that the employee and employer are ‘quietly’ ignoring the restrictions, the paperwork will be ignored and FBT is likely to apply. Locally owned and operated Hamilton's longest serving car valet centre. Protect and maintain the beautiful appearance of your vehicle. Expect only the very best level of performance and quality workmanship from dedicated groomers used by all major car yards and dealers. We are now open Saturdays 53 Commerce Street, Frankton, Hamilton | P: 07 - 847 - 6797 M: 027 682 9592 | Web: www.autovaletandming.co.nz When it comes to calculating the FBT payable, the quarterly equation appears to be simple enough: work out the proportion of days that the vehicle was available for private use during the quarter, and multiply this by the relevant vehicle value and a specific percentage. However, each of these elements can be easily misunderstood. There are certain instances where a vehicle is deemed to be not available for private use, and thus such days are excluded from the FBT calculation. Specific exclusions include: when a vehicle is stored on the business premises; if the vehicle is used for an emergency call between 6pm and 6am; and the employee travels out of town for business. Once an employer has determined the private use proportion for a vehicle, this is multiplied by the vehicle’s value. There are TAXATION AND THE LAW > BY HAYDEN FARROW Hayden Farrow is a PwC Executive Director based in the Waikato office. Email: hayden.d.farrow@nz.pwc.com two methods available to determine a vehicle’s value - either the cost price method, or the tax book value (TBV) method. The TBV method is the original cost price (including or excluding GST depending on the rate) less its total accumulated depreciation at the start of the FBT period. A minimum value of $8,333 applies when using the TBV method. Once an employer has chosen which method to use for a particular vehicle, they must continue to use the same method for that vehicle for five years. Typically, the cost price method is used from acquisition because the TBV method front loads the FBT liability. After five years employers should then switch to the TBV method, which should give rise to a reduction in the annual amount of FBT payable. Cue our next common error: Where there is a switch from the cost method to the TBV method after five years, the minimum amount of $8,333 is not an automatic option. The $8,333 minimum is only applicable where a vehicle’s TBV is less than $8,333. As a general rule, FBT is calculated based on GST inclusive vehicle values. GST exclusive values can be used, but the fringe benefit calculation percentage needs to be adjusted accordingly. The quarterly percentage using the cost price method is adjusted from 5% to 5.75%, and the percentage using the TBV method adjusts from 9% to 10.35%. A common error is to use the GST exclusive vehicle values multiplied by the lower of each applicable rate. Another misunderstanding is to apply the 5% rate to all vehicles, even when the TBV method has been used. FBT can be frustrating because it takes considerable time to calculate, for what can seem like a small amount of tax. But it is worthwhile reviewing both the availability on which FBT is being calculated and the calculation itself. There may be savings to be had or errors to be identified, both of which can add up over a period of time. The comments in this article of a general nature and should not be relied on for specific cases. Taxpayers should seek specific advice. LODGERENTALS.CO.NZ Contemporary NZ art works for hire in workplaces & private homes. FrEE consultation & installation Consultancy services available. NOBODY KNOWS HAMILTON LIKE US Portfolio Art Hire Janet Knighton P 021 059 0028 E art.hire@xtra.co.nz
WAIKATO BUSINESS NEWS November/December 2016 53 Free support offered for start-ups and innovators This is the first in a series which will profile Waikato emerging business and starts ups. Each story will look at the challenges each business faced and the journey they took to get to market. Waikato entrepreneurs, inventors and business start-ups can get valuable free advice and mentoring support thanks to a team of local experts. Waikato Innovation Park’s Business Growth Services team meets with around 400 businesses every year helping them grow and supporting embryonic products and services to reach their market. Led by business growth manager Craig Purcell, the team of six includes business growth advisors Peter Davey and Novell Gopal, project and business growth advisor Merran Davis, communications and administration assistant Sneha Tiwary and Waikato mentor manager Tony Kane. “Every one of us would have 20 years’ experience in a variety of businesses, so we know a lot of tricks of the trade that we can share,” said Craig. Their clients include both established businesses and start- ups. Some are people with good ideas but in need of guidance or research and development co-funding, while others may be small-to-medium businesses with high-growth aspirations or with innovative new products or services they want to commercialise or export. “We’ve got a privileged job,” said Craig. “We meet with people who have new ideas with real merit and commercial application, week in-week out. The challenge is taking their inventions and good ideas through to reality and commercial success.” The services are free to all greater Waikato businesses, not just those based at Waikato Innovation Park. The Business Growth Services team is funded by the Regional Business Partner Network (RBPN) which is supported by New Zealand Trade & Enterprise (NZTE) and Callaghan Innovation. To date the team has engaged with more than 1000 businesses and have helped contribute more than $1.3 million to the regional economy through their support of new businesses and products. At least one-third of clients are outside of Hamilton, and team members travel at least once a month to Tokoroa, Thames, Paeroa and Tuakau to meet with people and talk to them about their businesses. A key part of their job is talking to people, listening to their ideas and assessing whether they are commercially viable. “Not every business idea is a good one,” said Craig. “That’s part of what we do – trying to get market validation – will someone want to buy it?” Bay man takes helm at Institute of Directors The Institute of Directors in New Zealand (IoD) has announced the appointment of Bay of Plenty’s Glenn Snelgrove to the role of interim chief executive, following the resignation of Simon Arcus. Mr Snelgrove is an experienced governance practitioner and serving member of the IoD and is currently a member of Council, chairman of the HR Committee and chairman of the Bay of Plenty Branch Committee. He also holds numerous governance positions including as chairman of the South Waikato District Council Risk and Audit Iod event at stadium The Institute of Directors Waikato branch held a function at FMG Stadium Waikato in November at which the founder and chief executive of Board Dynamics, Henri Eliot spoke about ‘Disruptive Technologies – balancing risk and opportunities’. The Business Growth Services team: From left, Craig Purcell, Merran Davis, Tony Kane, Peter Davey, Novell Gopal and Sneha Tiwary. Committee, Chairman of the Lake Tarawera Wastewater Steering Committee and as a member of the Lake Rotorua Rotoiti Sewage Steering Committee. IoD president Michael Stiassny welcomed Mr Snelgrove’s appointment. “As a long time contributor He said it was important that those with innovative business ideas or products to come and see them early on as it’s more likely that we can help them access co-funding or a Getting Started Grant. “If they come and see us later, sometimes there is not much we can do for them.” Their aim is to support businesses who have high-growth aspirations, are export-focused, technology-driven or have innovative products or services with real commercial merit. An initial ‘discovery’ meeting is then followed by an action plan that details opportunities as well as barriers to growth. Depending on the stage of the business or product, they Interim chief executive at The Institute of Directors New Zealand, Glenn Snelgrove. to the IoD and member of the Council, Mr Snelgrove brings Phil Taylor, Stuart Anderson and John Adams. can put people in touch with a business mentor, connect with resources or experts to expand their business or offer access to co-funding. “As a team we have great networks and contacts,” said Craig. “Between us there are very few questions we cannot answer.” He said Waikato mentor manager Tony Kane has great links through Business Mentors, which can be valuable for some start-ups. “Mentors are great because they can see the wood for the trees – they can be former CEOs and business owners who have gone through this and can offer valuable advice or put things in context.” a wealth of governance knowledge and valuable experience. His leadership will stand the Institute in good stead while we undertake a recruitment process,” Mr Stiassny said. Mr Arcus, who was the chief executive since July 2015, but had acted in the role from November 2014, resigned due to personal reasons last week. Mr Arcus was known for his governance experience, advocacy and knowledge, having established IoD’s thought leadership hub, the Governance Leadership Centre. Ben Stevens and Henri Eliot. Robyn Hallam-Reid and Phil Caffyn. Andy Tremewan and Josh Roberts. Eligible businesses may qualify for Regional Business Partner co-funding through the NZTE Capability Development Voucher Scheme, which can be used to subsidise training and capability development. The vouchers enable key staff in eligible businesses to upskill in key areas, including strategic planning, marketing, capital raising, business systems, finance, sustainability, managing resources, governance and exporting – allowing access to around 800 high-level service providers. CRAIG PURCELL: KEY MISTAKES NEW BUSINESSES MAKE 1. “Not testing the market is one of the single biggest mistakes new businesses make. They are so focused on inventing, that they don’t spend time finding out if there is a market for their product or service. We say to people, talk to people who aren’t your friends. Do some market research. It’s important to get an indication of how your product will sell when it is ready for the market.” 2. “A solution looking for a problem. Someone might have a great solution but they haven’t thought about what problem it solves.” 3. “Too small a market. For some, New Zealand is too small and they might want to consider marketing globally. To build a business with only 2000 units projected to sell is probably just too niche. You need to research your potential market and how that stacks up against costs. Is the market even big enough to justify spending, say $25,000, to build a prototype?” 4. “Too many advisors can also be a problem. I’ve encountered people getting advice from five or six different channels, and it can get confusing. I’d recommend to people to focus on getting good advice from just one or two trusted advisors.” People interested in getting advice and support for their new business idea, product or service can contact 07 857 0538 or businessgrowth@wipltd.co.nz For more information see www.wipltd.co.nz/what-we-do/ grow-your-business
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Waikato Business News November/December 2016

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