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Introduction
Problems with the current law
Policy intent
Proposal

Introduction

7.1     Car parks provided to employees that are situated within the employer's place of work or leased to the employer are not subject to FBT as they fall within the exemption for benefits provided on the employer's premises. A leased car park may, however, be far removed from the physical premises of the employer. In contrast, licensed car parks provided to an employee are subject to FBT even though they may be right alongside the leased parks.

7.2     Submissions noted that this distinction is arbitrary and generally recommended exempting all car parks to ensure consistent treatment. About two-thirds of employer-provided car parks are estimated to be exempt at present.

7.3     The government agrees that the distinction is arbitrary. Given that an employer-provided car park has an economic benefit to employees as it saves employees from having to pay for a park themselves, the government considers that FBT should apply to all employer-provided car parks that are available for private use, irrespective of legal form. This means excluding car parks from the current "on-premises" exemption.

7.4     This chapter discusses the policy rationale for the change and the next chapter discusses a range of options for valuing car parking benefits. Ideally, the benefits should be valued at the market value of equivalent car parks, but in some cases establishing the market value may be difficult. Under this approach, a sizeable number of parks would still not give rise to a benefit because, for example, comparable free parking would be available on the street. Also discussed is a minimum value threshold that might further limit the application of the proposed change.

Problems with the current law

"On-premises" exemption

7.5     Car parks are included within the scope of the FBT rules through the catch-all provision in section CI 1(h), which incorporates "(a)ny benefit of any other kind... enjoyed by the employee".

7.6     However, car parks that are located on the premises of the employer are exempt from FBT under section CI 1(q), which more generally exempts a wide range of benefits provided by employers on their premises.^[18]

Leases and licences

7.7     In 1999 Inland Revenue issued Public Ruling (BR Pub 99/6) on car park fringe benefits. In relation to car parks, the ruling defined the premises of the employer as being car parks that the employer enjoyed an exclusive right to occupy.

7.8     Following this interpretation, the "on-premises" exemption extends to car parks that are leased or rented by the employer. This is because a lease is considered to convey an exclusive right to occupy the property being leased as well as a legal interest in it and is, therefore, part of the employer's premises. However, employers who hold a licence in relation to an employer-provided car park are liable for FBT on the basis that a licence does not provide an exclusive right of occupancy.

7.9     In this example, the "on-premises" exemption results in different tax treatments according to the legal characterisation of the car park, despite the same benefit (not having to pay for private parking) being enjoyed by the employees in both situations.

7.10     In principle, the legal rights enjoyed by the employer regarding the car park should not be relevant to whether a car park provided to an employee confers a private benefit on the employee.

Business premises

7.11     Restricting the definition of the "premises of the employer" to locations on which the employer's business is carried on would remove the lease/licence distinction. However, there is no policy rationale for exempting from the FBT rules car parks that are situated on the employer's business premises. The location of the car park on the employer's premises does not change the private benefit associated with the car park.

7.12     This approach would also cause uncertainty about what the employer's business includes and how close to the business activities the car park would need to be to form part of the same premises.

Minor benefits

7.13     The original intent of the "on-premises" exemption was to exclude minor benefits enjoyed on the employer's premises that were generally costly to value and monitor relative to the FBT value of the benefits. The provision of alcohol at a company function that includes clients and some employees is an example of the type of minor benefits that were intended to be covered by the exemption.

7.14     In contrast, the value of car parks, at least those provided in urban centres, can be very high, as illustrated in table 2:

Policy intent

7.15     When a car park is provided to an employee by an employer for private car parking the employee enjoys an economic benefit from not incurring car parking expenses that would have to be paid from salary or wages.

7.16     In most situations the nature of car parking benefits is determined by the nature of the travel that necessitates the car park. Generally, whenever an employee travels from home-to-work, or another location, the travel will be of a private nature, because the travel facilitates employment but is not the employment task itself. Hence, the use of an employee-provided car park is also private in nature. An exception to this general approach may be appropriate when the employee is an "itinerant" worker, such as a travelling salesperson.

7.17     In contrast, if a vehicle meets the definition of "work-related vehicle", there should be no fringe benefit because both the vehicle and its parking during work hours are work-related. Such situations should be specifically exempted.

7.18     Of the three examples, only in example 1 could the car park be considered to remove the need for the employee to purchase car parking facilities during business hours. Only in that instance should FBT be payable. In example 2 the employee does not have any vehicle that is available for private use once it is at work as it is a work vehicle.

7.19     In example 3 the employee receives no private benefit as she does not require a car park for private travel, not even between home and work. The vehicle is solely for business purposes. FBT is not relevant.

Home as a work base

7.20     Car parks located at an employee's private residence when the residence is also a place of work would not be covered by the FBT rules because the car parks would not generally be provided by the employer. If the residence were owned by a company that employed the occupier of the residence, any rental paid by the occupier would normally include the parking. To the extent that the employer subsidised the rent, the benefit would be treated as monetary remuneration rather than subject to FBT.

Availability for use

7.21     In addition to the actual use of a car park, the availability of a car park is an advantage to an employee. Irrespective of whether or not an employee chooses to use the car park on any given day, the ability to use the car park whenever it is needed is a benefit enjoyed by the employee. Although car parks are treated as the provision of a service under section CI 3(10), arguably a car park is an asset and, as noted earlier, assets should, in theory, be valued according to their availability.

7.22     Compliance costs would increase significantly if employers were required to determine the exact extent to which a car park was privately used. This would involve monitoring employees' actual use of employer-provided car parks and the cost of each car park for each period of actual use. It would also be inconsistent with the way that many car park charges are structured, given that they are usually payable on a monthly basis and provide for 24-hour use.

7.23     In practice, there may not be a significant difference between valuing a car park on the basis of actual use versus its availability, given that in many cases an employee may not place much value on a car park being available overnight if there is little or no need to use it outside work hours. Any relatively lower demand for car parking outside of work hours would normally be reflected in car park charges.

Other issues

7.24     The government considers that there may be a case for excluding car parks provided to employees of entities such as hospitals and schools that are required to operate in central business districts and other affected areas to serve the needs of the community in those areas.^[19] The government welcomes submissions on how best to address this issue.

Proposal

7.25     The government proposes to include, as a listed fringe benefit, employer-provided car parks that are used for private purposes or available for the private use of an employee.

7.26     Car parks would, therefore, be specifically excluded from the "on-premises" exemption.

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