Paying FBT is Costly and Painful
Last year I took over the affairs of new client, a limited company, where the two shareholder-employees had been running an expensive car on the company but there was no sign of FBT being paid or any adjustments made in respect of FBT.
Upon asking the clients, they said they had been told by their previous accountants not to worry about FBT because the IRD would never discover that FBT wasn’t being paid. Upon further discussions with the clients, it turned out they had never been very happy about the advice received and they, in fact, did not like taking financial risks. I pointed out that the potential liability, going back over the years since they had bought the car, when you added on late payment interest and penalties, was huge – in excess of $100K.
The silly thing was that as is often the case, that there was a relatively painless way out of the whole dilemma. They had another car, a huge current account with the company in their favour, the wife was an excellent record keeper, they didn’t use the car privately every day and they worked from home.
The solution was obvious. Firstly, rather than write out a large cheque for the FBT which is pretty nasty, they could just reduce their current account by the FBT-equivalent value. OK, GST is due on this, but why worry about reducing the current account balance when there was little chance of ever getting this out of the company anyway?
Even better, as they did not use the car everyday for private use and were good record keepers, I suggested they kept a log book, officially restricted the private use of the car and then only pay the FBT equivalent on the days the car was used privately. This turned out to be just one day at the weekend and two days in the week. The result? Just 3/7 th of the equivalent FBT adjusted via their current account so they were now safe from the IRD, had no more sleepless nights and even better, not having to send a big cheque to the IRD!
If you’ve been left at risk by your accountant from the FBT point of view, contact Nick on 0800 ASK NICK or e-mail firstname.lastname@example.org. FBT is not always a problem!