Ordinarily, the FBT landscape does not change too much from year to year. However, in the last few months there have been a number of noteworthy developments particularly in relation to FBT and car parking benefits.
The purpose of this article is to highlight some of these developments, as well as provide a couple of timely reminders in the leadup to FBT season.
Car parking fringe benefits – ATO updates
A key focus of the ATO in relation to FBT has been in relation to the provision of car parking fringe benefits, as evidenced by the recent release of two draft documents:
- Draft Taxation Ruling TR 2019/D5 Fringe Benefits Tax: car parking benefits, which updates and replaces TR 96/26 Fringe Benefits tax: car parking fringe benefits (which is now withdrawn pending the finalisation of Draft TR 2019/D5); and
- A draft update to Chapter 16 (Car parking fringe benefits) of the Fringe benefits tax – a guide for employers.
In broad terms, the draft ruling and update to Chapter 16 (which are intended to be read together) provide more expansive coverage for employers to identify when a car parking fringe benefit arises and how to value it. Three particular reminders and changes are outlined below.
1. Exempt workhorses and car parking fringe benefits
The 2 most common fringe benefits relating to cars are car fringe benefits (relating to the provision of a car to an employee for private use) and car parking fringe benefits (relating to the provision of an employer provided car park to an employee).
For both fringe benefits, there must be a car, which is defined for FBT purposes as a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.
From a car fringe benefit perspective, the benefit will be exempt from FBT where the car is a ute/van/dual cab (i.e. a ‘workhorse’ motor vehicle) and the only private use of the vehicle is home to work travel and other private travel that is minor, infrequent and irregular.
However, just because the car is exempt for the car fringe benefit purposes, this does not mean that it is also exempt for car parking fringe benefit purposes. This is a common misconception and Draft TR 2019/D5 provides a timely reminder (refer paragraph 6) that, so long as the other conditions for a car parking fringe benefit are present, employers may still be providing a taxable car parking fringe benefit even if the car is an exempt workhorse for other FBT purposes.
2. What constitutes a commercial car parking station?
One of the key requirements for an employer to be providing a car parking fringe benefit is that a commercial car parking station must be located within a one kilometre radius of the employer provided car park used by the employee and the fee for all-day parking is more than the prescribed car parking threshold. Whether something constitutes a commercial car parking station is also relevant to determining the taxable value of the fringe benefit where the commercial parking station method is used, which provides that the taxable value of the car parking fringe benefit is the lowest fee charged for all-day parking by any commercial parking station within a one-kilometre radius of the premises on which the car is parked.
This raises the question: what constitutes a commercial car parking station?
A commercial car parking station is defined in s 136(1) of the FBT Assessment Act as:
a permanent commercial car parking facility where any or all of the car parking spaces are available in the ordinary course of business to members of the public for all-day parking on that day on payment of a fee, but does not include a parking facility on a public street, road, lane, thoroughfare or footpath paid for by inserting money in a meter or by obtaining a voucher.
When TR 96/26 was released, the ATO explored this definition and outlined a number of excluded arrangements including parking arrangements:
- that had a primary purpose other than all-day parking, that charged rates for all-day parking significantly higher than rates charged at other all-day parking facilities; and
- for car parks not run with a view to making a profit.
On the back of these concessions, many employers were able to gain favourable rulings that a particular car park was not a commercial car parking facility and, therefore, could be ignored in relation to the provision of car parking fringe benefits. In addition, the first excluded concession mentioned above has resulted in a general assumption that certain car parking facilities (e.g. regional airport car parks predominantly used for short-term parking, or shopping centres providing all-day parking at penalty rates) that provide all day parking at rates higher than the threshold do not create an FBT exposure because the primary purpose of the car park was other than all-day parking.
Following the release of the draft ruling and update to Chapter 16, the ATO (as highlighted by the following paragraphs of Draft TR 2019/D5) proposes a much tighter position regarding what constitutes a commercial car park going forward (from 1 April 2020):
… if a car park allows all day parking but its fee structure discourages it with higher fees, the car park can still be considered a commercial parking station if it satisfies other requirements. This is because the parking facility makes car parking spaces available to the public for all-day parking on payment of a fee.
20. Only one space in a parking facility needs to be available in the ordinary course of business to members of the public for all-day parking, for the car park to meet the definition of a ‘commercial parking station.[emphasis added]
In particular, the ATO has signalled its intention to consider treating the following as commercial car parks for FBT purposes: shopping centres, hospitals, universities and airports, etc.
Given the considerably tighter interpretation of what constitutes a car park, employers providing employee parking (particularly those outside of CBDs currently providing parking without paying FBT) may need to get out the 1km tape measure and see what the 2021 FBT year holds in store for them if the ATO position remains unchanged.
3. Car parking stations in the modern era
In addition to the above, and acknowledging the modern era, the ATO has also flagged in the draft documents that the traditional view of what constitutes a commercial parking station is no longer sufficient, highlighting changes to what is considered to be a commercial car parking facility and what is the ordinary course of business. In particular, the offer of parking pursuant to certain mobile phone applications may now be caught if done by a business, as indicated by the following example in the updated Chapter 16:
Fancy Co is a marketing firm and also uses Park-it to list a space in its office complex. Fancy’s office complex is in an area of the central business district where parking is at a premium. Generally parking in the complex is restricted to senior executives of Fancy Co. Frequently, (for example, when a senior executive takes annual leave), there are empty spaces. Fancy has a consistent policy of listing those empty spaces on Park-It. Fancy charges market value rates and on average, has a parking space listed and available on Park-It for at least 60% of the year.
The parking would be considered to be permanent and offered as part of Fancy’s business (even though it is not its main business). Therefore, parking at Fancy Co’s office complex would be considered to be a commercial parking station.
The conclusion reached in relation to Fancy Co is a big concern.
From an employer’s perspective, even being expected to know such spaces are available on the 1st business day of the FBT year let alone the status of the provider (whether a business and why/often etc spaces are made available) means this proposed expansion of the net is fraught with problems.
Hopefully, once the consultation period is complete, this view is abandoned.
Car parking fringe benefits – ATO’s valuation concerns
In determining the taxable value of a car parking fringe benefit, there are a number of different methods employers can use. The default method is the commercial car parking method (as discussed above). One of the other methods is the market value method under which the taxable value of the fringe benefit is the market value of the car parking actually provided, based on a valuation report from a ‘suitably qualified valuer’.
It appears that something has attracted the ATO’s attention in relation to the market valuation method, given the statement released on 21 January 2020 to tax agents (refer QC 61147):
From February, we may contact your clients who have engaged an arm’s length valuer as required under the market value method. In some instances valuers have prepared reports using a daily rate that doesn’t reflect the market value. As such, the taxable value of the benefits is significantly discounted or even reduced to nil.
Help your clients understand that engaging an arm’s length valuer does not mean they’ve met all the requirements for working out the taxable value of their car parking fringe benefits. It is your clients’ responsibility to confirm the basis on which valuations are prepared. They must examine any valuation they suspect is incorrect or which considerably reduces their liability.
We could speculate as to what is motivating the ATO but rather than do that, we make the following observations:
- it is unclear how the ATO proposes to target employers that use the market value method as the current FBT return does not disclose this information. Perhaps the ATO is anticipating a changed 2020 FBT return? Alternatively, will the ATO gather data directly from (certain) valuers?
- the car parking fringe benefit rules and specifically the valuation rules are not particularly employer compliance friendly. A recent Board of Taxation review aimed at improving cumbersome FBT compliance obligations (such as requirements to identify and measure distances to ‘commercial car parks’, determine whether and when commercial car parks are open and prices charged) may have resulted in some changes which could have overcome the type of valuations that are raising concerns for the ATO, if it had not ultimately been mooted. We are not sure what has happened to the review but given the ATO’s recent statement it may be that identifying/making any compliance focused changes wasn’t as simple as hoped.
As the ATO has provided a list of minimum requirements for a valuation report in QC 61147, it may be timely for employers that use the market value method to review any valuations they are relying on.
FBT and ride-sharing
The advent of Uber, Ola, DiDi and other ride sharing/sourcing arrangements have created some confusion in the tax world. In recent years, there has been a need by Revenue to confirm whether income earned from ride sourcing activities is assessable (it is) and whether drivers need to register for GST (they do) in the same way as taxi drivers.
However, from an FBT perspective, the ATO recently stated that, for the purpose of employers accessing the exemption for travel undertaken by their employees to or from work or due to illness, the travel must be undertaken in a taxi – it could not be taken in a ride sourcing vehicle. So the difference between an employer obtaining the exemption or not depends on whether the employer/employee calls a taxi or an Uber (or other ride sourcing vehicle).
Given this inconsistency, legislation has now been introduced into Parliament to align the FBT treatment of ride-sharing travel services (other than luxury cars such as limousines) with the existing GST treatment of taxis. These changes are anticipated to apply from 1 April 2019 (i.e. for the 2020 FBT year), assuming the legislation is passed shortly.
As a final note, as part of the MYFEO 2019-20 report the Government has signalled its intention to introduce a sharing economy reporting regime for ride-sourcing and short-term accommodation from 1 July 2022. Additionally, from 1 July 2023, the sharing economy reporting regime will be extended to include asset sharing, food delivery and task based platforms which will likely result in popular Australian car parking applications (such as Parkhound, Parkopedia and Cheap Parking) being required to report identification and income information to the ATO for data matching purposes. From a practical perspective, it will be interesting to see how this will be enforced.
Conclusion
Given the increased focused on FBT by the ATO at the moment, especially around car parking and ride-sharing, employers and advisers should consider reviewing existing arrangements and continue watching the FBT space carefully as there is no telling where the ATO’s focus will turn next!
This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. Webb Martin Consulting Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.
