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Inland Revenue

Tax Policy

On premises fringe benefit exemption

(Clauses 28 and 89)

Summary of proposed amendment

An amendment is being made to clarify the scope of the exemption from fringe benefit tax (FBT) for benefits provided on the premises of an employer (or a member of an employer’s group of companies). The amendment is necessary because the wording used by the rewritten Income Tax Act 2004 has resulted in some confusion regarding the scope of the exemption. To reaffirm the policy behind the provision, the amendment confirms that only benefits “used or consumed” on the relevant premises are exempt from FBT.

Application date

The change applies from 1 April 2005, the date the Income Tax Act 2004 took effect.

Key features

Section CX 20 of the Income Tax Act 2004 and section CX 23 of the Income Tax Act 2007 are being amended to ensure that the scope of the “on premises” exemption from FBT remains consistent with the policy intent of their corresponding provision in the Income Tax Act 1994.


The “on premises” exemption contained in the Income Tax Act 1994 excluded from the definition of “fringe benefit” a benefit that is provided by an employer on the employer’s premises “where the benefit is enjoyed by the employee on those premises”. The equivalent provisions in the 2004 Income Tax Act, provide that a benefit is not a fringe benefit if it is provided by an employer to an employee and is “received or used by the employee on the premises of the employer”.

Some taxpayers have argued that providing employees with vouchers for future use (such as grocery vouchers) means the exemption applies – on the basis that the voucher was “received” by the employee on the employer’s premises. This interpretation could logically extend to any expensive and mobile goods given to the employee at the employer’s premises that can be taken away for the employee’s benefit.

There was no intention to extend the scope of the relevant definition as part of the rewrite process. Although the effect of the 1994 Act wording was initially “saved” by a provision in the 2004 Act, that saving stopped applying when an unrelated amendment was made to the provision in 2006. The 2006 amendment was directed at a separate point, and no widening of the exemption was intended.

The current amendment will clarify that the policy intent of the exemption remains consistent with the provision in the 1994 Act. Benefits will be exempt when they are “used or consumed” on the relevant premises – wording more closely aligned with the “enjoyed” concept used in the 1994 Act. The amendment will therefore be effective from 1 April 2005, the date on which the 2004 Act took effect, to remove any confusion over the correct treatment of benefits provided on premises for the intervening periods.