Gift Cards and Farm Source Dollars: The New FBT Rules Every Dairy Farmer Should Know

Christmas bonuses, end-of-season rewards, and Farm Source Dollars—these staff incentives are part of farming life. But recent tax rule changes have left many dairy farmers confused about whether these rewards should be treated as wages (PAYE) or fringe benefits (FBT).

The good news? The rules are now clearer and simpler than ever.

The Gift Card Confusion: What Happened?

For years, dairy farmers treated staff rewards consistently:

• Prezzy cards and Visa gift cards: Fringe Benefit Tax (FBT)
• Farm Source Dollars: Fringe Benefit Tax (FBT)
• Supermarket vouchers: Fringe Benefit Tax (FBT)

Then in April 2025, Inland Revenue released guidance (QWBA QB 25/07) that threw a spanner in the works. Suddenly, “open loop” cards—those that work anywhere like Prezzy or Visa gift cards—were meant to be treated as cash wages requiring:

• PAYE deductions
• Grossing up the value
• Complex payroll adjustments

Meanwhile, “closed loop” options like Farm Source Dollars and Mitre 10 vouchers remained FBT items.

The problem? This created unnecessary complexity for what should be simple staff rewards.

The Fix: Parliament Steps In

Recognizing the compliance burden this placed on employers, Parliament introduced the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill.

Key changes:

• Open loop cards will be officially treated as FBT benefits
• The change applies retrospectively from 1 April 2025
• All gift cards and vouchers now follow the same simple FBT rules

To bridge the gap until the law passes (expected before 31 March 2026), Inland Revenue issued Commissioner’s Operational Position OP 25/02 in September 2025:

• Before 16 April 2025: No retrospective changes to FBT treatment
• 1 April 2025 – 31 March 2026: Farmers can safely use FBT treatment without IRD enforcement action

Understanding the Types of Staff Rewards

Open Loop Cards (now FBT)

• Prezzy cards, Visa/Mastercard gift cards
• Usable anywhere the card network is accepted
• Previously caused PAYE complications—now simplified under FBT

Closed Loop Rewards (always FBT)

• Farm Source Dollars from Fonterra
• Supermarket gift cards (Countdown, New World)
• Hardware store vouchers (Mitre 10, Bunnings)
• Usable only at specific retailers

All rewards now follow the same FBT rules—no more guesswork.

The De Minimis Exemption: Your Best Friend

The de minimis exemption lets you give staff rewards tax-free if you stay within these limits:

Individual Limit

Less than $300 per employee per quarter

Business Limit

Less than $22,500 total across all employees per year

Important: It’s All or Nothing

If you exceed either threshold, all unclassified benefits become subject to FBT—not just the excess.

Real Farm Examples

Tax-Free Scenarios:

• $200 Prezzy card at Christmas → Exempt
• $250 Farm Source Dollars mid-season bonus → Exempt
• Monthly $50 supermarket vouchers (=$150/quarter) → Exempt

FBT Required:

• $400 Visa gift card at season end → Over $300 limit
• Two $200 Prezzy cards in one quarter → $400 exceeds $300 limit
• Total rewards of $25,000 across all staff → Exceeds $22,500 annual limit

Pro tip: Spread larger rewards across quarters to maximize the exemption.

Your Action Plan

Step 1: Set Up Tracking

Create a simple spreadsheet to track:

• Employee name
• Date of reward
• Type and value of reward
• Running quarterly total per employee
• Running annual total for whole business

Step 2: Plan Reward Timing

• Christmas bonus: Plan for December quarter
• Season-end rewards: Consider spreading across March and June quarters
• Performance bonuses: Space them out to stay under quarterly limits

Step 3: Know When FBT Applies

If you exceed the de minimis limits:

• Include all benefits in your quarterly FBT return (IR4B)
• Apply the FBT rate (currently 42.86% for most benefits)
• File by the 20th of the month following each quarter

Step 4: Keep It Simple

• Don’t use PAYE for any gift cards or vouchers
• Don’t gross up values or adjust payroll
• Treat everything as FBT for consistency

Why This Matters for Your Farm

Consistency: All staff rewards follow the same rules—no more guessing which system to use.

Simplicity: No payroll complications, grossing up, or PAYE calculations for gift cards.

Flexibility: Continue rewarding your team in practical ways that work for farming operations.

Cash Flow: Keep rewards under the de minimis limits to avoid FBT liability entirely.

Common Questions Answered

Q: What if I already processed gift cards through PAYE? A: The retrospective law change means FBT treatment is correct. Consider adjusting future payroll processes to reflect FBT treatment instead.

Q: Do Farm Source Dollars count toward the $300 limit?
A: Yes, all unclassified benefits count together toward the quarterly and annual thresholds.

Q: Can I give some staff gift cards and others cash bonuses? A: Absolutely. Cash bonuses remain PAYE income, while gift cards and vouchers are FBT benefits.

The Bottom Line

The new rules bring welcome simplicity to dairy farm operations. Gift cards, Farm Source Dollars, and store vouchers are all FBT benefits. Use the de minimis exemption strategically to keep smaller rewards tax-free, and include larger rewards in your FBT returns when needed.

Next steps: Review your current staff reward practices and ensure your tracking system captures all benefits. When in doubt, consult with your accountant to optimize your approach under the new rules.

Need help implementing these changes on your farm? Contact CMK Accountants for personalized FBT planning and compliance support.