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Background
The cost to the employer
Market value to the employee
Options for applying the market value rule
A minimum threshold
Background
8.1 If a car park were valued on the basis of its actual benefit to the employee the value would be the amount that the employee was willing to pay to have the use of the car park whenever it was needed. This amount would include the cost of having the car park available so that it could be used when it was needed.
8.2 In practice, it would be difficult to ascertain accurately the value that each employee places on the benefit as the circumstances of each employee will vary. Even if it were possible to arrive at an accurate valuation, the compliance costs involved in correctly valuing, monitoring and recording the benefit to each employee would be extremely high.
8.3 As with other parts of the FBT rules, therefore, the current valuation rules were intended to be a compromise between accuracy and simplicity, to prevent high compliance costs relative to the tax returned.
8.4 Under section CI 3(10),[20] the value of a fringe benefit that involves the provision of a car park is:
- the open market value if the employer is normally providing car parking as part of the business; or
- the amount paid or liable to be paid by the employer if the employer is not in the car parking business;
- the open market value if neither (a) nor (b) apply.
8.5 In practice, the application of these rules is limited, given the "on-premises" exemption and the interpretation that it includes leased car parks. However, with the proposed removal of the "on-premises" exemption for car parks, the application of the rules needs to be reviewed.
The cost to the employer
8.6 As noted earlier, the cost of an employer-provided car park can be a reasonable estimate of the private benefit enjoyed by the employee when the car park is leased or licensed to the employer at market value. In other circumstances, this valuation method can be complex and lead to incorrect outcomes.
| Example 1
The car park is leased to the employer from a car parking company at market value. Example 2 The car park is owned by the employer, who purchased it some years ago. Example 3 The car park is leased to the employer as part of the employer's business premises but has no specific value assigned to it under the lease. |
8.7 In example 1 the cost to the employer approximates the cost to the employee as this is the price the employee would have had to pay for the car park if it were not provided by the employer.
8.8 In example 2 difficulties arise from the different benefits enjoyed by the employer and employee in relation to the car park. The original cost of the car park represents the historic value to the employer rather than the current value. Unless the employer's opportunity cost[21] is used, cost may bear no relationship to the value of ongoing use or availability of the car park enjoyed by the employee.
8.9 In example 3 the car park has a current value, but because the car park is not separately priced in the contract, as it is attached to the location of the actual business premises, it may be difficult to identify the cost attributable to providing the car park.
Market value to the employee
8.10 Except when the car park is leased or licensed to the employer at market value, the value of the fringe benefit is best based on identifying the cost of the alternative parking that the employee would have had to obtain if the employer had not provided the car park. (In this document this is described as an alternative market value.) In areas where free or inexpensive alternative car parking is available, FBT on the employer-provided car park would be nil or very low. The value of car parking fringe benefits would be higher in areas where car parking is more expensive.
| Example 1
A car park is provided to an employee at an inner city business. The price of parking on the street outside the business is $1 per hour between 8am and 6pm on weekdays. Outside those hours there is no charge for the car park. The market value of the car park provided to the employee is $1 x 10 hours x 5 days, or $50 per week. Example 2 A car park is provided to an employee located in a rural area. Visitors to the business generally park along the road in front of the business. There is no charge for parking along the roadside. The market value of the car park in this example is nil. |
What is an equivalent car park?
8.11 A key part of applying the market value rule involves determining what is an equivalent car park. An equivalent car park would provide identical or similar benefits to the employer-provided car park.
8.12 The market value of an equivalent car park would be readily ascertainable when an identical car park is available to the general public, particularly if it is provided by the employer. For example, a business may contract a parking company to manage visitors' car parks, which staff may also be able to use free of charge.
8.13 The market value is more difficult to ascertain when a range of similar but not identical car parking options is available at different prices.[22] In this situation it is reasonable to assume that the employee would use the lowest cost equivalent alternative. The value of the fringe benefit should, therefore, be equal to the least expensive equivalent park.
8.14 Generally, an equivalent car park would:
- be available to the general public for the same period of time as the employer-provided car park; and
- provide the same or similar level of assurance of available car parking; and
- be located in the same or similar vicinity as the employer-provided car park.
Options for applying the market value rule
8.15 In the absence of a third party, market-based charge to the employer, an alternative market value rule is the best approximation of the cost to the employee. There is a range of options, however, for applying the rule that should assist in reducing compliance costs. The government invites feedback on which of these options would achieve the best balance between the appropriate policy outcome and the need to minimise costs.
| Option 1
Use the market rate of the equivalent car park within a specified radius (say, 0.5km) of the employer-provided car park This option aims for reasonable precision as to the location of equivalent car parks. The assumption is that equivalent surrounding car parks will have a relatively uniform value. If there were no equivalent car park within the specified radius, the closest comparable park would have to be used. The onus would be on the employer to provide corroborating evidence. To reduce compliance costs, the identified value could be valid for a specified period of time - for example, five years. This period of time, although essentially arbitrary, would provide certainty for the employer while retaining a reasonably current approximation of the value of the car park. To further reduce compliance costs, this approach could be applied just to the central business districts (CBD), or comparable council zoning, so that if a car park were outside of the CBD it would not be subject to FBT. At the margin, however, this would mean that FBT would be payable on car parks on one particular street but not the neighbouring street. |
| Option 2
Use local council or similar charges for equivalent car parks This option would provide a specific benchmark that may be less open to argument than having reference to all possible equivalent car parks. It should, however, link to the closest equivalent car park as council charges can vary across a city. It would mean that valuations would be subject to the policies of councils; for example, a council may introduce a particular pricing policy that is not necessarily reflective of market rates. Also, in some areas, councils may not provide equivalent car parks. Again, this option could be limited to car parks in CBDs. |
| Option 3
Apply standard values that reflect regional differences This option would save employers having to identify equivalent car parks and market rates. The use of standard values to reduce compliance costs is used elsewhere in the tax legislation. Periodic surveys - say, every five years - could be undertaken to establish regional values, and local authority zoning could be used to specify the CBD or commercial areas that would be covered. One rate for New Zealand would considerably simplify the application but would be inequitable as car park charges vary significantly from region to region (see table 2). A variant would be to apply the standard rate just to the main centres such as the Auckland and Wellington CBDs. Although this option seems simple, it does raise boundary issues. To reduce the incentive for car parking to be developed just outside of the zone, the Commissioner of Inland Revenue could be given discretion to set and alter the area covered for tax purposes. |
| Option 4
Apply a set value related to the value of the land on which the car park is sited This option would overcome regional boundary problems and result in a valuation that reflected the circumstance of each car park. But it would be relatively complicated to apply and would require some work on the part of the employer, plus the possible costs of any valuation. It would involve taking the rateable land value, assuming the car park is a vacant lot, and determining the value per square metre by dividing the valuation by the number of square metres. The square metres would then be linked to a set value for FBT purposes. |
| Option 5
Combination of the four preceding options If the employer is charging third parties for equivalent car parks or is paying a third party for the use of car parks, this could be the value attributed for FBT purposes. Otherwise, a standard regional value would apply. |
A minimum threshold
8.16 Regardless of any other limitations, such as specifically limiting the benefit to CBD areas, a minimum threshold could be set per park to exclude small benefits. This would in itself exclude many car parks outside of the main centres - for example, the average value of a car park in the South Island outside of Christchurch and Dunedin is $38 per month.
8.17 Employers would have reasonable certainty about whether a benefit was likely to arise as the annual value of most car park benefits would be known in advance and so could be compared against the minimum threshold. But with those cases near the threshold, employers would have to keep track of benefits to ensure they did not exceed the threshold.
8.18 The government also welcomes submissions as to how a rule of this nature can best be implemented.
[20] Section CI 3(10) determines the value of fringe benefits that involve a service.
[21] For example, what employers could receive if car parks were let out to the public.
[22] For example, off-street parking on a weekly basis and on-street parking on an hourly basis.