Shareholder Employee Benefits
A shareholder employee benefit is not one tax. Inland Revenue splits cash, perks, and shares. Fringe benefit tax is the tax on non cash perks. Salary and dividends are not fringe benefits.
A shareholder employee, for FBT, is a shareholder who works in a close company, or in a company with no more than 25 shareholders. A look through company is not in that definition. They must be entitled to, and have elected, income other than a PAYE income payment.
Which clock applies
FBT is payable on the fringe benefits a shareholder employee receives, unless the company has elected to treat unclassified benefits as dividends. A perk given to an associate is taxed as if the employee received it. The short map of employer FBT sits on FBT for employers. Once a perk is in, price the taxable value on the FBT calculator.
Three tests that get mixed
| Test in IR409 or on the income page | What it decides |
|---|---|
| Close company: 5 or fewer natural persons or trustees hold more than 50% of the voting or market value interests | The company type used for the major shareholder test, and for the income year FBT election |
| Shareholder employee: close company, or no more than 25 shareholders, and not a look through company | FBT on fringe benefits, unless unclassified benefits are elected as dividends |
| Major shareholder employee: 10% or more of ordinary shares or voting rights of a close company | Non attributed pool at 63.93%. Cash remuneration includes interest and dividends from the employer or a related employer |
| All other employees in a non attributed pool | 49.25%. If a major shareholder is one recipient of benefits that cannot be assigned, the whole benefit type is 63.93% |
| Working for Families and student loans: you and associated persons hold 50% or more of the voting interests | Attributable fringe benefits, plus the FBT the company paid, count as income. Ordinary employees do not add fringe benefits to that income |
The 63.93% and 49.25% pools are part of the alternate rate calculation. When those rates apply across the year is on single 63.93% vs alternate 49.25% and quarter 4. If income details are missing at quarter 4 or on the annual return, IR409 allows 49.25% or 63.93% on the year’s attributed benefits for shareholder employees, and for employees who receive attributed income from a company or trust that is their employer. Using 49.25% means a remuneration adjustment in the next year’s quarter 4 or annual return. Using 63.93% does not.
IR409: you do not pay FBT on cash benefits such as salary and wages paid to employees, and interest and dividends paid to shareholder employees.
Salary is PAYE or the IR4
The Employer’s guide, IR335, is the PAYE rule for shareholder employees in close companies. Deduct PAYE from regular salaries paid for pay periods of 1 month or less, and from other payments such as allowances and lump sum payments. Do not deduct PAYE from irregular salary payments. Include every shareholder employee salary that had no PAYE in the company IR4.
For the tax year ending 31 March 2027, IR335 sets the ACC earners levy at 1.75%, and it does not apply to earnings over $156,641. Deduct that levy from shareholder employee salaries that have PAYE. Do not deduct it from shareholder employee salaries with no PAYE. ACC invoices the close company employer for the earners levy on that no PAYE remuneration, using the amount declared in the IR4.
A current account can stand in for an employee contribution. IR409: for shareholder employees and major shareholder employees, a current account adjustment counts if the journal entries are made and are effective on or before the last day of the FBT period. That is the last day of the quarter, or the last day of the annual or income year period. The contribution reduces the taxable value. It does not cancel the return.
The motor vehicle opt out
Inland Revenue’s close companies page allows an opt out of the FBT rules for motor vehicles only when both of these apply. You have only 1 or 2 motor vehicles available for private use of shareholder employees. You do not provide any other fringe benefits. You then use the income tax rules for vehicle expenditure, and you make private use adjustments for income tax and GST.
Tell Inland Revenue in myIR, or with a note on a paper return. The election is valid only if it is made by the due date for filing the income tax return in the year the vehicle is acquired or first used for business. After that, you cannot go back to FBT for that vehicle unless it is disposed of, or you stop using it for business. If you were already registered for FBT and the election is in time, cancel the FBT registration. Income year return dates, when you are still in FBT, are on FBT filing frequency and due dates.
A look through company is not a close company shareholder employee file. IR409: look through companies are generally not liable for FBT on benefits provided to working owners. If the company has ordinary employees and provides them with fringe benefits, the look through company is liable for FBT on those benefits.
If a major shareholder employee is one of the people who receives a non attributed benefit that cannot be assigned to one person, every benefit in that benefit type is taxed at 63.93%. One major shareholder in a shared pool pulls the whole type onto the higher pool.
Working for Families and a student loan
This is a separate income adjustment, not the FBT return. Inland Revenue’s attributable fringe benefits page: if you are a shareholder employee, and you and any associated persons hold voting interests of 50% or more, the value of attributable fringe benefits you receive, plus the FBT the company paid, is income for Working for Families and student loans. If you and your spouse or partner together hold 50% or more, you both calculate that income and tell Inland Revenue.
On that page, attributable fringe benefits are motor vehicles for private use, low or nil interest employee loans, subsidised transport of more than $1,000 where the employer transports the public, contributions of more than $1,000 to insurance schemes, contributions of more than $1,000 to sickness, accident, or death funds, and any other benefits of more than $2,000. If you are not a shareholder employee of the company you work for, you do not include fringe benefits in that income.
Inland Revenue’s Jack and Diane example
Jack and Diane are married, have three children, and receive Working for Families. Together they have a 100% voting interest in a plumbing company and both work in it. Each has a salary of $35,000. Each has a work vehicle available for private use. The value of that private use plus the FBT the company pays is $8,000 for Jack and $6,000 for Diane for the tax year. Jack has a student loan, so he includes $8,000 for Working for Families and the student loan. Diane includes $6,000 for Working for Families. The page carrying this example was last updated 28 April 2021.
Shares are an ESS, not the FBT line
Inland Revenue’s employee share scheme rules: an ESS issues or transfers shares in the company or a group company to a past, present, or future employee or shareholder employee, and the arrangement is connected to their employment or service. Transfers to an associate count. A director who receives a schedular payment is an employee for these rules.
The ESS benefit is income. The amount is broadly the market value of the shares on the share scheme taxing date, minus what was paid for the rights or shares. The benefit is treated as received on the ESS deferral date, 20 days after the share scheme taxing date. A former employee who receives shares with no tax withheld is treated as receiving the benefit on the share scheme taxing date. The employer must include the benefit in employment information even when no PAYE is deducted. IR335: do not deduct ACC earners levy from employee share scheme benefits.
An exempt ESS is not an ESS. It is offered to all, or almost all, employees, and both the benefit and the amount the employee invests are limited. Different tax rules apply. From 1 April 2026, an unlisted company can elect to designate ESS shares as employee deferred shares. Tax waits until the earliest liquidity event: the company lists, the shares are sold, transferred, or cancelled, or a disposal restriction ends. Firm guides add option plans, phantom schemes, and dollar caps for an exempt scheme. Those caps are not printed on the ESS rules page opened for this guide, so they are not repeated here.
ACC cover is a levy, not FBT
ACC’s shareholder employee cover page: Workplace Cover is the standard cover for all shareholder employees, with the same benefits as regular employees. How ACC invoices you depends on how you pay them. PAYE shareholder employees are levied under the employer Workplace Cover policy, and you deduct the earners levy from their income. Non PAYE shareholder remuneration is invoiced once a year from what was filed with Inland Revenue. That invoice has a final levy and a provisional levy, and the July or August invoice for non PAYE shareholder employees includes the Work levy, the earners levy, and the Working safer levy. Non PAYE shareholder employees can apply for CoverPlus Extra and choose how much income is covered if they cannot work. ACC last published that page on 18 May 2023.
ACC’s weekly compensation for shareholder employees page uses a plain description: a person who works in a company they own shares in, including a business with only one worker. That is wider than the FBT definition above. Weekly compensation is generally up to 80% of earnings before the injury, before tax and deductions, unless CoverPlus Extra applies. Liable earnings include PAYE wages and shareholder salary allocations. Dividends and other passive income are not included. ACC may ask for the company financial statements, the IR4, personal tax returns, and GST returns. The first payment usually runs from day 8 after the injury.
What people mix up
On r/PersonalFinanceNZ, a look through company owner asks about opting out of FBT and journaling private use of a car. The current account journal is real, and it has a deadline: the last day of the FBT period. The opt out is the close company motor vehicle election, and it needs no other fringe benefits. A look through company working owner is on the IR409 note above, not on that opt out. A US forum thread about an S corporation and a W2 is not New Zealand law. Quora did not surface a New Zealand shareholder employee FBT thread this run.
Shareholding articles from firms talk about retention, a minority stake, and succession. Inland Revenue still taxes an ESS benefit as income on the share scheme taxing date. A 2015 style “no PAYE and no top up” story is older than IR335. Follow the guide: regular pay periods of 1 month or less have PAYE, irregular salary payments do not, and the no PAYE amount goes in the IR4.