The ATO has released a draft ruling on car parking fringe benefits and a draft replacement chapter on car parking in the ATO’s FBT guide for employers. In particular, we draw your attention to the ATO’s approach to car parking fringe benefits in the context of workhorse cars and to two issues relating to commercial parking stations.
Two recent ATO documents have issued dealing with the issue of car parking fringe benefits.
In fairness, most of the ATO efforts have gone into updating its public commentary about when a car parking fringe benefit arises and how it is valued.
At present, both ATO documents are draft and subject to public comment prior to review and finalisation, so for now we will just focus on the more noteworthy developments.
The ATO have tackled the topic from two angles.
Firstly, after a long standing commitment to review and update TR 96/26 Fringe Benefits tax: car parking fringe benefits, the ATO have released a draft replacement ruling TR 2019/D5 Fringe Benefits Tax: car parking benefits. TR 96/26 has been withdrawn pending the finalisation of TR 2019/D5.
Secondly, a draft replacement Chapter 16 (Car parking fringe benefits) of the ATO’s FBT guide for employers has also been issued for comment.
In broad terms the draft ruling and replacement Chapter 16 provide more expansive coverage for employers to identify when a car parking fringe benefit arises and how to value it. The more expansive coverage is welcome.
For the purpose of this article, we focus on three issues, one which is a current issue and sometimes overlooked (workhorse cars) and the other two, a tightening up/expansion of the ATO view as to what is a commercial car parking station.
We explore all three issues below.
Car parking fringe benefits and workhorse cars
As the name suggests, car parking fringe benefits arise in relation to the parking of cars. A car 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.
A common misconception is that a car parking fringe benefit does not arise where the ‘car’ is not subject to FBT given the operation of section 8(2) of the Fringe Benefits Tax Assessment Act 1986.
Section 8(2) provides an exemption for certain cars (utes, vans and dual cabs designed to carry a load of less than 1 tonne and fewer than 9 passengers) where the only private use of the vehicle is home to work travel and other private travel that is minor, infrequent and irregular.
TR 2019/D5 provides a timely reminder (at paragraph 6) that, despite a car not being subject to FBT (due to section 8(2)), it may give rise to a car parking fringe benefit if the other conditions of a car parking fringe benefit are present (including that, on the day, the employee drives to/from home on and that the car is parked on an employer-provided parking space for more than 4 hours).
Of course, a car parking fringe benefit only arises where the employer provided car parking is within 1km of a commercial car parking station that charges more than the car parking threshold as the lowest rate for all day parking on the first day of the FBT year.
What is a commercial car parking station?
When TR96/26 was released, the ATO provided a few concessions for car parking facilities, including facilities:
- 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.
These concessions have seen may employers/car parks secure favourable rulings that a car park does not constitute a commercial car parking facility and therefore is not relevant when an employer determines whether the parking it provided was within 1km of a commercial parking station that charged an all-day parking fee greater than the threshold.
The concessions have also resulted in employers assuming certain car parking facilities 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.
For example, regional airport car parks which are predominantly used for short term drop off/pick up and shopping centres that provide all-day parking at penalty rates were routinely ignored when an employer tested the 1km boundary.
The ATO is using the draft documents to clarify (and tighten) the rules by limiting the scope of the historical concessions.
Paragraph 20 of TR 2019/D5 states:
‘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”.’
Further at paragraph 18 the Ruling notes that:
‘ … 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.’
For employers that may have enjoyed the ‘old ATO view’, the ATO have indicated the changed interpretation will apply from 1 April 2020.
Accordingly, for all employers that provide employee parking and do not currently pay FBT on car parking fringe benefits, it is high time to get out the 1km tape measure and see what FBT year 2021 holds in store if the ATO position remains unchanged.
‘Car parking’ disruptors
The ATO have also flagged that the traditional view of the nature of a commercial parking station needs to be re-considered in terms of how parking spaces are currently made available.
For example, consider a business that has lease premises and car parking spaces where the car parking spaces are excess to requirements. The business makes the spaces available for rent/lease via an ‘app’ intended to connect people having spaces available with others wanting spaces.
Is there any chance those spaces, need to be considered as a commercial car parking station?
Based on the ATOs comments in TR 2019/D5 and examples in the draft of Chapter 16, the ATO says ‘yes’.
We are not sure that the sum of the parts in the draft ruling supports the view expressed.
In TR 2019/D5 the ATO states:
‘What is a commercial parking station?
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- A car park is a commercial parking station when it meets all of the following for a particular day. The car park:
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- is permanent
- is a commercial car parking facility
- makes all-day parking available to the public on payment of a fee
- is not on-street parking, and
- does this in the ordinary course of business.’ (underlining added)
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In relation to what is a ‘commercial parking facility’ TR 2019/D5 states:
‘ “Commercial” parking “facility”
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- The term “facility” is not defined. Considering its ordinary meaning and the statutory context, a car space will be provided at a parking facility, if the purpose of the complex at which the car space is available is to provide car parking to the public. Factors that would support whether a car space is provided at a commercial parking facility include whether it:
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- is a purpose-built parking facility (including parking provided as part of an office or apartment building)
- offers parking to members of the public (whether by way of advertising or using a mobile application).’
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As to what is the ‘ordinary course of business’ the ATO states in TR 2019/D5:
’21. A commercial parking station offers parking in the ordinary course of its business. What constitutes the “ordinary course” depends on the business being carried on and whether the offer of all-day parking is a usual or regular part of business activities even if it is not the sole business activity.’
Putting all of this together, in draft Chapter 16 the ATO uses Example 8 to contrast parking made available via an app by an individual and a business.
A mobile phone application, “Park-it”, allows individuals to list spaces available for the public to book a park.
Joe occasionally uses Park-it to list a space in his driveway as available for parking. When the driveway is not offered on Park-it it is not available for members of the public to park there. As a driveway is not a permanent car parking facility and is not offered in the ordinary course of Joe’s business, it is not considered to be a commercial parking station.
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 first 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.
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