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Inland Revenue

Tax Policy

LEG-22-SUB-0038 - Paper: Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations 2022

In Confidence

Office of the Minister of Revenue
Chair, Cabinet Legislation Committee



1. This paper seeks the Cabinet Legislation Committee’s agreement to submit an Order in Council amending the Income Tax (Fringe Benefit Tax, Interest on Loans) Regulations 1995 to the Executive Council. The proposal is to raise the fringe benefit tax (FBT) prescribed interest rate for low-interest, employment-related loans from 4.50% to 4.78%, in line with an increase in market interest rates.

2. Changes to the prescribed interest rate are a routine matter and do not involve a change of policy. The methodology used for setting the rate has been applied consistently since the early 1990s.


3. The FBT rules tax non-cash benefits provided to employees. Included in the definition of ‘fringe benefit’ is any employment-related loan on which the employer is charging a rate of interest that is below the market rate. The interest differential is taxable. A prescribed rate set by regulations is used as a proxy for the market rate of interest to save employers the compliance costs associated with determining the market rate relevant to loans that they have provided to their employees.

4. The Income Tax Act 2007 (‘the Act’) allows regulations to be made to set the prescribed rate. Once a rate is set, it remains the prescribed rate of interest until changed by a subsequent Order in Council. The current FBT prescribed rate, which has applied since 1 July 2020, is 4.50%.

5. The prescribed rate of interest is based on a Reserve Bank of New Zealand (RBNZ) survey of first mortgage housing interest rates on the last day of each month (‘floating first mortgage new customer housing rate’). This is calculated as the weighted average interest rate for the surveyed institutions, the weightings being based on each institution’s share of total lending for housing purposes. This RBNZ series is selected as the benchmark for setting the FBT prescribed rate because it is seen as a good indication of market interest rates.


6. The Act provides that when regulations to increase the prescribed rate of interest are made, they apply to quarters starting at least one month following the date the regulations were made by Order in Council. Regulations that reduce the rate may apply for the current quarter if made at least one month before the end of the quarter.

7. In accordance with the Act, I recommend that the regulations to raise the rate have effect from 1 July 2022. As the Act requires that the regulations be made at least one month prior to the start of the quarter in which they come into effect, a waiver of the 28-day rule is unnecessary.

Revenue implications

8. Raising the prescribed interest rate to 4.78% will increase the amount of FBT that will be collected by approximately $0.59 million per annum, which amounts to $2.36 million over the current forecast period (2022-23 to 2025-26). This is demonstrated in the table below (years beginning 1 July).

  $millions increase/(decrease)
Vote Revenue (years ending 30 June)  2021/22 2022/23 2023/24  2024/25 2025/26 & out years
FBT Revenue 0.00 0.82 0.82 0.82 0.82
Company Tax 0.00 (0.23) (0.23) (0.23) (0.23) 
Net Revenue 0.00 0.59 0.59 0.59 0.59
Impact on Operating Balance - (0.59) (0.59) (0.59) (0.59)


9. The regulations comply with the principles, Acts, guidelines, and requirements set out below as follows:

9.1 the principles of the Treaty of Waitangi

9.2 the New Zealand Bill of Rights Act 1990

9.3 the Human Rights Act 1993

9.4 the principles and guidelines set out in the Privacy Act 1993

9.5 relevant international standards and obligations

9.6 the Legislation Guidelines (2018 edition), which are maintained by the Legislation Design and Advisory Committee

Regulations Review Committee

10. There are no anticipated grounds for the Regulations Review Committee to draw the Order in Council to the attention of the House under Standing Order 319.

Certification by Parliamentary Counsel

11. The Parliamentary Counsel Office has certified that the attached Order in Council is in order for submission to Cabinet.

Impact Analysis

12. A regulatory impact analysis is not required as the proposal is of a minor and routine nature and does not substantially alter existing arrangements.


13. Inland Revenue will publish an article about these changes in its Tax Information Bulletin.

Proactive Release

14. I propose to proactively release this Cabinet paper, associated minutes, and key advice papers in whole within 30 working days of Cabinet making final decisions.


15. The Treasury, Customs and the Parliamentary Counsel Office have been consulted in the preparation of this paper and agree with its recommendations.


16. I recommend that the Cabinet Legislation Committee:

1. note that the regulations set the prescribed rate of interest for calculating the taxable benefit of low-interest, employment-related loans;

2. agree that the FBT prescribed rate of interest should be increased from 4.50% to 4.78% from the quarter commencing on 1 July 2022;

3. note the following changes as a result of the decision in recommendation 2, with a corresponding impact on the operating balance:

  $millions increase/(decrease)
Vote Revenue 2021/22 2022/23 2023/24  2024/25 2025/26 & out years 
FBT Revenue 0.00 0.82 0.82 0.82 0.82
Company Tax 0.00 (0.23) (0.23) (0.23) (0.23)
Net Revenue 0.00 0.59 0.59 0.59 0.59
Impact on Operating Balance - (0.59) (0.59) (0.59) (0.59)


4. note that the changes are forecast changes and do not have appropriation implications;

5. authorise the submission to the Executive Council of the Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations 2022.

Authorised for lodgement

Hon David Parker
Minister of Revenue