Parking the car park tax

Inland Revenue recently released a draft public ruling clarifying the fringe benefit tax treatment of employer supplied carparks. 

Surprisingly, the Commissioner has expanded the number of situations where car parks will be exempt from FBT. 

FBT is a tax applied to non-cash benefits provided by employers to employees.  It ensures all forms of employment remuneration are subject to tax.  Benefits provided by employers on their premises are generally exempt from FBT.  This exemption commonly applies to car parks and on premises childcare provided to staff.

Currently it is necessary to determine if the car parks are provided on premises that are either owned or leased by the employer, or alternatively on licensed premises.  Car parks on premises owned or leased by the employer are exempt from FBT while the provision of car parks in a commercial car parking building under a license agreement are not.  The lease or license distinction has been an area of uncertainty for employers.

In her draft public ruling, the Commissioner considers the meaning of the term "lease" for FBT purposes.  She concludes the legal form of the arrangement should have less emphasis and instead focus on the substance of the arrangement.  Consequently, where an employer has the "substantially exclusive" right to use the car park it will be exempt from FBT.

Examples of substantially exclusive car parks include where no one else other than the employer's staff can use the carpark, or where the employer can have unauthorised users removed. 

Situations where there is no particular allocated car park, such as in a parking building, or where there is no signage indicating a reserved car park, will not qualify for the exemption.

In 2013, the Government publically scrapped a controversial plan to impose FBT on all carparks provided to employees in Auckland and Wellington.  However some employers feared this was a temporary reprieve, and that Inland Revenue might seek to tax carparks through other legislative changes.

Instead, the shift from legal form to commercial substance is a positive result from Inland Revenue.  For employers who provide car parks and are subject to FBT the effect may be less tax to pay and a reduction in compliance costs.

Greg Harris is a specialist tax partner in the Hamilton office of Deloitte.

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