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17 May 2019 Carparking fringe benefit legislation needs to be simplified

MEMBER 119 writes:

I have concerns with the way in which the carparking fringe benefit legislation is being administered. The legislation needs to be simplified as a matter of urgency. 

It is now over 4 years since the ATO in a Decision Impact Statement concerning the decision of the Full Federal Court in Commissioner of Taxation v Qantas Airways Ltd advised that it will update Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits. 

Despite the passage of time, no practical guidance has been provided by the ATO as to the meaning of ‘commercial parking station’ with the result that employers for a 5th year are expected to lodge their FBT return without any guidance as to whether nearby parking is considered to be a commercial parking station. 

Despite this lack of guidance, the ATO has advised that its audit focus areas for the coming year will include using fees for car parking facilities incorrectly classified as a commercial car park. Given the lack of practical guidance being provided by the ATO, this warning is particularly concerning. This concern is heightened by a conversation in which it was indicated that the test to be used to determine if a parking station is a commercial parking station is the fee that is charged by that parking station. 

“Commercial” is defined in the Macquarie Dictionary to mean “engaged in commerce, preoccupied with profits or immediate gains”. This involves more than simply looking at the amount charged for the good or service. 

For example, consider a business in the CBD which has a sealed outdoor carpark in which 50 cars can park. The business installs a boom gate, payment box and sign at the entrance to the property. The sign states “Carpark, insert $4, no change given. Coin return indicates park FULL maximum 50 vehicles.” 

Informal advice provided in discussion indicates nearby employers cannot use this carpark to value their carparking fringe benefits as it is not a commercial carpark. The reason being that the other carparks in the CBD charge $8 or more for all-day parking. 

The concern with this logic is it does not take the costs of providing the carpark into account and is inconsistent with interpretations applied to the Income Tax Assessment Act. In the example, the only cost for the business is the cost of installing the boom gate, payment box and sign. For this cost, the business receives $4/car x 50 parking spaces x 246 business days = $49,200/year. I have no doubt the ATO would treat the $49,200 as assessable income of the business. That being the case, the question arises as to why the parking is commercial for the purposes of the Income Tax Assessment Act, but not the Fringe Benefits Tax Assessment Act

The logic can also lead to an inconsistent conclusion when comparing a carpark with low establishment costs with a carpark that has high establishment costs. For example, assume the business in the example leased the parking spaces to a recognised carpark operator for $49,200 per year. The carpark operator installs a payment machine and charges $8 per day for parking. The carpark operator will receive ($8/car x 50 parking spaces x 246 business days) - $49,200 = $49,200. 

In this second situation, the informal advice indicates the carpark will be considered to be commercial because the daily fee charged is $8. This conclusion is somewhat confusing given the profit of the carpark operator in the second example is the same as the business providing the carpark in the first situation which is considered to not be commercial. 

Given these inconsistencies, the approach adopted by the ATO is somewhat puzzling. Rather than giving warnings about auditing employers who are trying to interpret a piece of legislation the ATO has spent over 4 years trying to interpret, I suggest it would be better to simplify the legislation. 

Tax Counsel Stephanie Caredes comments: The Tax Institute’s National FBT & Employment Taxes Committee has raised concerns with the ATO on a number of occasions about the need for updated guidance on carparking fringe benefits since the Qantas case. Also, please see the Institute’s submission to Treasury advocating for legislative change in this area which has also been provided to the ATO.


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