Tax trap stalls home use of computers

By PETER GRIFFIN

The Budget may have provided an unexpected boost for the growth of the "New Economy."

But businesses hoping for relief from steep fringe benefit taxes which hinder moves to equip their employees with computers and internet access for home use were out of luck.

While the Government's decision not to cut the corporate tax rate at 33 per cent was criticised, its failure to address fringe benefit taxes of up to 64 per cent on home computers has led the business community to question the validity of its drive to develop a knowledge economy and to encourage the uptake of IT skills.

A growing number of companies - Intel, Ford and ANZ bank among them - are rolling out programs aimed at increasing the IT skills of their employees, but the scale of such schemes could be limited by the tax burden companies face in supporting them.

Intel's home PC program, run in conjunction with Hewlett Packard, has been put on hold as part of widespread cost cutting and Ford is not expected to begin delivering computers to employees until the end of the year.

But ANZ has already deployed a large number of home computers for employees on which it pays fringe benefit tax of up to 64 per cent.

Over 50 per cent of ANZ's workforce has taken advantage of a home PC purchase scheme offering two Dell computer packages and 20 hours free internet access a month at reduced rates.

ANZ spokesman Steve Fisher said the move by was part of the bank's overall strategy of "e-transformation" and encouraged staff to undertake some of the 400 work-related courses available to them online in their own time.

"About 2200 employees have taken advantage of the programme and the company pays the fringe benefit tax on those computers because we don't want to burden our employees with it," he said.

But most companies find they can avoid the thorny fringe benefit tax issue just by keeping quiet about it.

IT Minister Paul Swain said the tax was largely self-regulating and enforcement of it was not high on the agenda of the Inland Revenue Department.

A number of major corporations contacted by the Herald said they side-stepped fringe benefit tax issues by allowing employees to take work laptops home for their own private use.

Ernie Newman, chief executive of the Telecommunications Users Association, said the blurring of the line between the home and workplace had made the concept of fringe benefit taxes "inherently flawed."

"It's the dilemma the Inland Revenue Department faces where this crosses the threshold of being of value to the company and its employees to become a tax dodge," he said.

The minister said he would bring the issue to the attention of Finance Minister Michael Cullen but that his hands would be tied until more sweeping changes to the tax system were carried out.

"The problem in the past was that people were offering remuneration packages that tried to get around tax,"Mr Swain. "It's something that's not going to be solved out of one portfolio like this [IT]. It's part of a wider debate."

But Craig Elliffe, a tax partner at KPMG, said changes to fringe benefit tax laws were unlikely to result from the McLeod Committee's comprehensive review of the New Zealand's tax system, preliminary report of which is due in the next few months.



Michelle Davie, a spokeswoman for the Finance Ministry, said there were no exemptions to fringe benefit tax and that the value of the tax depended on how much personal use was derived from the computer.

"It depends on the nature of the fringe benefit provided," she said. "This could range from an employer giving a PC to the employee for personal use to an employee taking home a laptop for business use and playing games on it."