The November release of Draft Ruling TR2019/D5 (the draft ruling) may prove to be a cause of concern for employers.

If finalised as drafted, the draft ruling could open the door to an increased number of employers being held liable for Fringe Benefit Tax (FBT) for the provision of car parking benefits to employees.

Any benefit an employer provides employees outside of their salary can potentially lead to an FBT obligation; providing car parking to employees is no exception. employee parking

Broadly, criteria required to be deemed a car parking benefit are:

  • A parking space is provided for an employee near their place of work by their employer;
  • The duration the benefit is provided for exceeds 4 hours;
  • The vehicle is used by the employee between their home and their place of work on that day;
  • A commercial parking station is located within 1 km radius of where the car is parked;
  • The lowest fee charged by the operator of any commercial parking station located within 1 km exceeds the car parking threshold*.

*Car parking threshold for the 2020 FBT year is $8.95. 

Given the abundance of commercial car parks in most central business districts, businesses operating in this vicinity would typically attract car parking fringe benefit provisions.

With the release of the draft ruling – which replaced TR 1996/26 - the real change appears to be the Commissioner’s aim to substantially increase the number of situations in which FBT for car parking benefit can be applied.

The ATO, however, has declared that any proposed change is only due to the revision of what it constitutes “ordinary course” of business.

Historically, car parks where “the price… [was] artificially inflated by virtue of a monopoly or due to the availability of a captive market” were excluded from giving rise to a car parking benefit.

The view here was that inflated prices were to deter long term parking, particularly at shopping centres where the aim is to encourage the rotation of shoppers and discourage people from parking for other purposes. It is becoming increasingly common for shopping centres to provide a limited amount of free parking and then impose a fee per hour thereafter.

Under the draft ruling, “a car parking facility may still qualify as a commercial parking station even if the facility has another purpose” and "a hospital, shopping centre, hotel, university or an airport” are all examples expressly given in TR2019/D5. 

The interpretation requires that all-day parking is available to the public, on payment of a fee and during the ordinary course of business. The car parking facility must be permanent and on-street parking is excluded.

This new interpretation will see the taxable benefit of car parking provided by employers now pushed out to include suburban areas and employers will need to be mindful when considering the inadvertent application of fringe benefits.FBT

An increase in compliance costs for employers is destined to ensue from the ATO interpretation if finalised. This rise in costs is attributed to the inherent difficulties around monitoring the provision of the benefit including employers with a large number of employees, often compounded by those employed on a casual basis.

The ATO itself may find it increasingly difficult to monitor compliance as the draft ruling widens the net on what will qualify as a commercial parking station.

What next?

If the ruling is finalised as drafted, it takes effect from 1 April 2020. This provides employers with a short window of time to review their arrangements and determine whether they need to restructure the provision of such benefits to their employees.

Some employers may be able to rely on the carve-out for the provisions for small businesses. A small business for these purposes is one that has turnover of less than $10 million per annum and where the employer is not a government body, a listed public company or a subsidiary of a listed public company. A review of eligibility for this exemption is recommended rather than simply relying on the same.

Should you have any questions about how this could affect your personal circumstances please do not hesitate to contact your local RSM office.