Tax Updates: 15 September 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Open loop cards & FBT

To set the ball rolling, let’s define what an “open loop card” is; admittedly, I did not appreciate the term until I read the QWBA (questions we’ve been asked). It is a prepaid card co-branded with a credit card (or other payment network) processor that is accepted for payment by merchants anywhere the network processor’s brand is accepted (that is, in the world, in-store or online) and can be used until the pre-loaded monetary value is depleted or the card expires.

The QWBA I’m referring to is QB 25/07 issued on the 16^th April by Inland Revenue (IR) titled “What is the income tax treatment of gift cards and products provided as trade rebates or promotions?” One issue discussed in the QWBA was a scenario where an employer provides their employee with an open loop card and the associated taxation implications.

The view expressed in the QWBA was that the benefit provided by an open loop card should be taxed under the PAYE (pay as you earn) rules as opposed to the FBT (fringe benefit tax) rules. Consequently, the employer should gross up the face value of the open loop card given to an employee and return PAYE on that amount.

During the QWBA consultation process, however, it was identified that employers often treated the open loop cards as a fringe benefit and returned them for fringe benefit tax purposes accordingly. IR therefore addressed the issue of the incorrect treatment by employers in the QWBA, stating that the Commissioner would not apply resources to correct previous tax positions taken in return periods ending on or before the date of the QWBA (16^th April 2025).

Post the release of the QWBA, we have seen the introduction of the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill (199-1) on 26^th August 2025, which includes, within its proposals, amendments to the law to allow open loop cards to be treated as a fringe benefit. It is intended that the Bill will be enacted before 31^st March 2026, and that the amendment will be retrospective.

Considering that the law change will be retrospective, the period of time between the release of the QWBA and 31^st March 2026, and the required systems changes that employers may have to make, IR has released OP 25/02: “Commissioner’s operational position on the FBT treatment of open loop cards provided by employers to employees.” This is to confirm that the Commissioner will also not apply resources to determining whether an employer taxpayer has applied the position outlined in the QWBA correctly for the PAYE periods that cover 1^st April 2025 to 31^st March 2026. OP 25/02 applies only where the employer has returned fringe benefit tax on the provision of open loop cards during this period.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.