FBT on Work Vehicles Is Changing from 1 April 2027 — And It's Simpler Than You'd Expect

If your business provides vehicles to staff or shareholder-employees, the way you calculate Fringe Benefit Tax is about to change for the first time in more than 40 years.

Budget 2026 confirmed that Inland Revenue is overhauling FBT on motor vehicles, with the new rules intended to apply from 1 April 2027. The good news is that the direction of travel is toward less paperwork, not more. The catch is that the things which determine your FBT bill are changing — and some of them are decisions you're making right now, when you sign-write a ute or write a vehicle policy.

A quick refresher: what is FBT?

Fringe Benefit Tax is paid by employers on the non-cash benefits they provide to staff. The private use of a company-owned or company-leased vehicle is one of the most common taxable benefits in New Zealand.

Under the current rules, you take the vehicle's GST-inclusive cost price (or tax book value), apply a statutory percentage, and then scale it by the number of days in the quarter the vehicle was available for private use. Working out those "available days" — and tracking exempt days — is where most of the compliance effort goes.

What's actually changing

Three things matter most.

1. Day-counting is going. Instead of tracking availability quarter by quarter, you'll place each vehicle into a category when it's provided to an employee. Each category carries a set "inclusion rate" — the proportion of the vehicle's value that gets taxed. You only revisit the category if the level of private use materially changes.

The Revenue Minister described the approach as "close enough is good enough." For most employers, that's a genuine reduction in admin.

2. The work-related vehicle exemption is being repealed. This is the big one. The current exemption depends heavily on what the vehicle is — broadly, it can't be a vehicle designed mainly for carrying passengers, which is why so many businesses run sign-written utes. The existing exemptions for work-related vehicles, business trips and emergency calls are all proposed to go.

In their place, the categories look at how the vehicle is used and permitted to be used. That cuts both ways: an ordinary car used genuinely for business may now access a lower rate, while a ute that's essentially a perk won't be protected by its shape.

3. Fuel type will matter. The valuation percentages haven't been updated since 2009 and are being reset. Lower percentages are proposed for hybrid and electric vehicles, reflecting their lower running costs. If you're refreshing a fleet, that's worth factoring in.

The proposed categories

These are still proposals and the numbers could shift, but the shape is clear. The less a vehicle functions as a personal perk, the lower the inclusion rate:

• Full private use — the vehicle is mainly there for personal use. Proposed inclusion rate: 100%.
• Partial private use — mainly a business vehicle, but private use is allowed on days off, public holidays, leave and for the commute. Must be branded. Proposed: 35%.
• Farm vehicles — mainly business-use farm vehicles in certain closely held farming companies. Proposed: 35%.
• Minor private use — the only private use is the same employee commuting to the same worksite. Must be branded. Proposed: 20%.
• Multi-worksite vehicles — the only private use is home-to-work travel across multiple worksites. Must be branded. Proposed: 0%.
• Pool vehicles — genuinely business-only, not allocated to one employee. Proposed: 0%.

Incidental private use — stopping at the supermarket on the way home, borrowing the van once to shift furniture — shouldn't change a vehicle's category or trigger FBT on its own.

What this means in practice

The compliance burden isn't disappearing; it's moving. Under the current rules you prove your position with day counts. Under the new rules you'll prove it with branding, written policies and clear allocation.

That points to three practical questions:

Is the vehicle branded? Sign-writing is a requirement for the partial-use, minor-use and multi-worksite categories. A vehicle you'd expect to sit at 20% could land at 100% simply because it's unmarked.

Are your private-use restrictions written down? Most of the lower categories depend on private use being genuinely limited. A verbal understanding with a staff member won't demonstrate much to Inland Revenue. Vehicle policies and employment agreements are where this needs to live.

Who is the vehicle allocated to? The distinction between a shared pool vehicle and one attached to a particular employee drives real differences in outcome.

Timing — and a word of caution

These changes are not law yet. They were confirmed in Budget 2026 and legislation is expected to go through the usual select committee and submissions process, with the timetable complicated by the election. That leaves a genuinely short gap between the rules being finalised and taking effect on 1 April 2027.

So: don't change your FBT treatment now. Do review your vehicle arrangements now, because branding decisions, lease terms and employment agreements you put in place this year will still be with you in April 2027.

The Hawke's Bay angle

Vehicles are central to how a lot of businesses operate around here — utes running across the Heretaunga Plains, trades vans, and staff cars for professional services firms. Because the current work-related vehicle exemption rewards a particular type of vehicle, plenty of local businesses have built their fleets around it. Those are exactly the arrangements the new categories will re-test.

At Epplett & Co we're already working through this with clients. Not because the rules are here, but because the fleet decisions being made this year are the ones that will be assessed under them.

Key takeaways

• New FBT rules for motor vehicles are proposed to apply from 1 April 2027.
• Day-counting and availability tracking are being replaced by an upfront category system.
• The work-related vehicle exemption is being repealed, along with the business trip and emergency call exemptions.
• Branding, written private-use restrictions and vehicle allocation become the key evidence.
• Hybrids and EVs are expected to attract lower rates than petrol and diesel vehicles.
• Nothing is law yet — review your position, but don't change your FBT treatment until the legislation passes.

If you run company vehicles and want to understand where you'll sit under the new categories, we'd love to talk it through.

Get in touch with the team at Epplett & Co — we're here to help you plan ahead, not catch up.

This article is intended as general guidance only and does not constitute personalised tax or financial advice. The changes described are proposals and are subject to change before they become law. Please contact Epplett & Co to discuss your specific situation.