Employers providing car parking to employees may face an unexpected fringe benefits tax (FBT) liability this year, with a new taxation ruling around commercial car parks released.
If an employer provides car parking, FBT may apply if there is a commercial car park within one kilometre. Unhelpfully, the FBT rules require every employer to determine if the nearby car park is commercial however the fundamental issue lies in defining what a commercial car park is.
What is a commercial car park?
Historically, the Australian Taxation Office (ATO) had accepted that a car park that had a free period, or low hourly rate but imposed a penalty rate for all-day parking, was not deemed a commercial car park. This generally applied to most shopping centre or hospital car parks.
However, following the Federal Court decisions in Commissioner of Taxation v Qantas Airways Ltd [2014] FCAFC 168 and Virgin Blue Airlines Pty Ltd v Commissioner of Taxation [2010] FCAFC 137, the ATO released Taxation Ruling 2021/2 (TR 2021/2) to replace Taxation Ruling TR 96/26 (TR 96/26). The new ruling now defines shopping centre and hospital car parks as commercial car parks.
Whilst TR 2021/2 was originally due to apply from 1 April 2021, the ATO deferred the start date to 1 April 2022 to allow employers more time to manage compliance.
The situation became even more uncertain when the previous Federal Government announced it would legislate to bring the car parking rules back in line with the previous TR 96/26 ruling (i.e. exclude most shopping centre and hospital car parks from a commercial label).
However, as the current government has not followed through on the announcement and the recent Federal Budget did not address the issue, the ATO has now confirmed that, in their view, TR 2021/2 is the correct interpretation of the law and, as such, applies from 1 April 2022 (i.e. the current 2023 FBT year).
What does this mean for employers?
As several types of car parks are now considered commercial (effective from 1 April 2022), this may give rise to an FBT liability.
This will particularly be the case where car parking is provided within one kilometre of a shopping centre, hospital or hotel, located outside of the traditional Central Business District.
Small businesses that operate within shopping centres or hospitals and provide parking to staff in those locations may also have an FBT exposure under the new ATO interpretation.
What action is required to be undertaken by employers?
Employers should immediately undertake the following:
- Identify all instances of car parking provided to employees and begin a process to determine whether there is a commercial car park (under the new definition) within one kilometre
- Consider whether a market valuation will reduce the cost as compared to a commercial car park valuation
- Determine how best to determine the number of benefits provided to employees (including the use of data analytics and the completion of 12-week registers, where applicable)
- Appropriately accrue for any potential FBT liability that may arise, as this will become due and payable upon lodgement of the employer’s 2023 FBT return in June 2023.
BDO’s Employment Taxes team is well placed to assist employers in navigating their way through the parking maze, including liaising with third-party car parking providers to obtain market value or reports as required.
To find out more or receive tailored advice for your business, reach out to your local BDO adviser now.