Employer alert: Car parking fringe benefits come to the suburbs

The Australian Taxation Office (ATO) has released the long-awaited rewrite of the car parking fringe benefits taxation ruling. A draft ruling TR 2019/D5 was released on 13 November 2019.

The draft ruling is a rewrite of TR 96/26 (now withdrawn), and accordingly provides updates to the previous ATO view that has existed for more than 20 years.

The most significant development in the new draft ruling is the risk that certain shopping centre paid car parks can be captured as fringe benefits (and car parks with similar arrangements). That is, the draft ruling states the ATO’s view is if a car park allows all-day parking, but its fee structure discourages it with higher fees (such as paid car parking arrangements at shopping centres), the car park can still be considered a commercial parking station if it satisfies the requirements to be a ‘commercial parking facility’. 

Generally, a car park will be a ‘commercial parking facility’ where it is run to make a profit. The most important difference between the withdrawn TR96/26 and TR 2019/D5 is that the new ruling does not have a general exclusion for shopping centre carparks that provide free short-term parking for shoppers and higher rates for all-day parking. Now you have to consider whether the parking facility is run to make a profit. This may be very difficult to know for employers not associated with the car park. It is understood the ATO will be giving more guidance in its guide for employers.  

This means that fringe benefits tax (FBT) can apply under the draft ruling to the provision of car parking by employers to employees on their business premises, broadly where:

• A paid shopping centre car park, or similar facility, is within a one-kilometre radius of the employer’s business premises;
• The car park charges greater than the car parking threshold (currently $8.95 for the 2019/20 FBT year) for all-day parking to the public;
• The other conditions of a car parking fringe benefit arise for an employee of an employer, for example, parking for at least four hours, the car is parked within the vicinity of the place of employment, and is in respect of employment etc; and
• The car park provides parking in the ordinary course of business and the facility is commercial (i.e. it is run to make a profit).

If the draft ruling is finalised on this basis, it will apply from 1 April 2020 in relation to this change for the 2020/21 FBT year onwards. 

Small businesses are not impacted by this draft ruling where they are eligible for the existing exemption from car parking fringe benefits (generally where the employer’s turnover is <$10m).

The following examples assume the draft ruling is finalised in its current form, the employer is not a small business, and the shopping centres continue to charge paid parking for all-day parking above the car parking threshold.

Example 1: An employer operates a business at a suburban shopping centre that provides for paid car parking with an all-day parking rate of $36. Ten of its employees park in the staff car park for free. There is no other commercial parking station for FBT purposes within a kilometre radius that charges car parking. The shopping centre has sought advice on the application of the ruling to its parking, concluding that it is not commercial in nature (and not run to make a profit). This is communicated to tenants. The employer will have no FBT liability for car parking by its employees, as there is no commercial parking station within a one-kilometre radius of the shopping centre car park.

Example 2: An employer operates a business at a suburban shopping centre that provides for paid car parking with an all-day parking rate of $36. Ten of its employees park in the staff car park for free. There is a bus interchange outside the shopping centre and a train station in close proximity. Commuters park at the shopping centre and take a train/bus into the city to work for the day. The car park is run for dual purposes, for both shoppers and commuters, and does this in its ordinary course of business and is run to make a profit. This is communicated to tenants. There is another commercial parking station for FBT purposes within a kilometre radius that charges $8 per day. The employer will have an FBT liability for car parking by its employees, as the shopping centre car park will be considered a commercial parking station for FBT purposes. Noting the employer is able to choose the lowest daily rate charged by a commercial parking station within a one-kilometre radius. If the employer values the car park spaces using the statutory formula and the commercial parking station method under the legislation, then it will have a car parking fringe benefit for the 2020/21 year of approximately $18,240; (broadly being 10 spaces x $8 x 228 business days). This would result in FBT of $17,833 (being $18,240 x 2.0802 x 47%).

Example 3: Please assume the same facts as in Example 2 above except that there is no other commercial car park within a kilometre radius other than the suburban shopping centre car park. An employer operates a business approximately 450 metres from a suburban shopping centre that provides for paid car parking with an all-day parking rate of $36. Ten of its employees park at the back of the business and pay $5 per day (e.g. $1,140 is paid by each employee in a year). The shopping centre runs the car park to make a profit, which is made public on the website of the shopping centre. The employer will have an FBT liability for car parking by its employees, as the shopping centre car park will be considered a commercial parking station for FBT purposes. If the employer values the car park spaces using the statutory formula and the commercial parking station method under the legislation, then it will have a car parking fringe benefit for the 2020/21 year of approximately $70,680; (broadly being 10 spaces x $36 x 228 business days less $1,140 x 10 employees). This would result in FBT of $69,103 (being $70,680 x 2.0802 x 47%).

We recommend that employers with business premises at or within the vicinity of shopping centres that have paid parking, commence reviewing the potential FBT obligations that may arise under this draft ruling (noting that this generally applies to those employers that are not eligible for the small business car parking exemption contained in the FBT law).

Judy White, associate director of tax, BDO Brisbane