Climate Change

Tax exemption for public transport stalls in Govt

A proposal to exempt employer-purchased public transport vouchers from the Fringe Benefit Tax has stalled in Government, Marc Daalder reports

A proposal that would have incentivised the provision of public transport vouchers to employees has stalled, a spokesperson for Revenue Minister Stuart Nash has told Newsroom.

While employers can provide double cab utes or company car parks to their employees as bonuses without paying Fringe Benefit Tax (FBT), any attempt to offer public transport vouchers or electric vehicle will still be taxed.

This is the latest rollback of proposals to address the environmental inequality fostered by the tax system, Newsroom has previously reported that the exemption for double cab utes has led to widespread purchasing of the cars as company vehicles, even as the Government scrapped a plan that would allow employers to avoid paying FBT on electric vehicle purchases.

Providing benefits for an employee, like the use of a company car or car park, resembles another form of salary, according to the IRD. In order to tax this, the Government uses the Fringe Benefit Tax, which is paid by employers on any fringe benefit (usually the provision of motor vehicles, discounts on goods or services, low-interest loans and contributions to non-Kiwisaver retirement schemes).

However, company car parks and double cab utes are exempt from FBT. According to IRD, company double cab utes are still subject to FBT if used for personal travel, but tax experts say this is rarely enforced.

"We suspect there is a large amount of non-compliance in the area," Terry Baucher, a long-time tax consultant and expert on tax policy, told Newsroom in February. Baucher cites the case of a tax conference in the South Island at which a participant told Nash: "Welcome to the South Island, where we don't pay FBT on company vehicles."

The exemption for public transport was floated as part of a package of environmental tax reforms, including the electric vehicle exemption, in 2018. It would have allowed employers to provide, for example, train or bus tickets to their employees as a bonus without having to pay tax on that.

While the EV exception was scrapped, the public transport exemption was mentioned as a going concern as recently as December 12, 2019.

A document on "environmental taxes" released to Newsroom under the Official Information Act notes that 2020 will see a review of "a number of existing tax regimes and provisions to ensure the tax system does not create a bias against environmentally-friendly investment and behaviour".

"Priorities in this category will be work in early 2020 on the application of Fringe Benefit Tax (FBT) to employer-provided public transport," it states.

However, Associate Minister for Transport Julie Anne Genter told Newsroom the project was not currently being worked on.

"It's something that we have asked for advice from IRD, but there's no active work at the moment," she said.

A spokesperson for Nash told Newsroom, "There's no further progress on the FBT issue".

A New Zealand First spokesperson said the proposal never even made it to Cabinet.

The public transport exemption was recommended by the Tax Working Group.

Andrea Black, a former independent advisor to the Tax Working Group and currently the policy director of the Council of Trade Unions, said she was disappointed to hear the project had halted.

"It's really disappointing that they looked at it and decided not to do it, because it's unlikely to have cost any money," she told Newsroom.

"To be quite honest, it's lower-paid workers who are likely to use public transport and it's higher-paid people who generally have car parks. There's lots of reasons for it."

Black also said the proposal would have had an important climate impact.

"If you're going to be exempting car parks, really, in order to level the playing field and make any sort of inroads on the environmental front, it would be reasonable to exempt public transport," she told Newsroom.

"We're really big on a just transition for climate change and public transport is a large part of helping climate change."

Transport makes up a fifth of New Zealand's annual emissions. Between 2007 and 2018, transport emissions rose by nearly 12 percent even as emissions from most other sectors fell. Very few policies to reduce transport emissions have made it through Cabinet in this term of Government, with even high-profile proposals like the feebate scheme getting the axe.

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