10 Aug 2010

Companies may be caught out by tax changes

7:51 am on 10 August 2010

Some firms will receive an unpleasant surprise following changes in the latest tax bill tabled in Parliament.

The bill, mainly focused on changes to the Goods and Services Tax (GST), will also change the rules surrounding exemptions from Fringe Benefit Tax.

The Taxation (GST and Remedial Matters) Bill closes a loophole in the rules that allows some taxpayers to avoid paying GST on their property transactions.

It also simplifies the rules on when an asset is used for both taxable and non-taxable purposes, such as company cars.

But, tucked away, is a change to Fringe Benefit Tax that will potentially net the Government millions of dollars in back tax.

The bill proposes changing the wording regarding a benefit received or used by an employee on the firm's premises, which is currently exempt from the tax.

The amendment now says the benefit must be used or consumed on the premises.

The change will also be backdated to the 2006 tax year.

Institute of Chartered Accountants tax director Craig Macalister says that, taking the previous wording to an extreme case, an employer could have gifted an employee a new car on the premises, which the employee could subsequently drive away and use, and it would still have been exempt from the tax.

Mr Macalister says it's likely a number of firms will be caught unaware by the amendment and it would have been better for Inland Revenue to audit firms, rather than apply the change retrospectively.

The change is similar to that used in the 1994 Income Tax Act, which was rewritten in 2004.