2024 FBT Series: What you need to know about car parking

2024 FBT Series: What you need to know about car parking

16 April 2024

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With the 2024 Fringe Benefits Tax (FBT) year-end now over, it is important for employers to refresh themselves on the rules surrounding FBT as part of their overall tax governance framework. In particular, given there have been several key developments on car parking fringe benefits in recent times, we emphasise the key technical considerations for employers, as well as additional economical insights to consider this FBT season. The Australian Taxation Office (ATO) has similarly updated its car parking guidance in its FBT Guide for employers.

Car Parking Fringe Benefits

Are you providing a car parking fringe benefit?

If you are an employer providing any type of car parking facility / space to an employee for their use, you may be subject to fringe benefits tax. Determining whether an employer-provided parking facility / space made available to an employee constitutes a car parking fringe benefit requires all of the following conditions to be met on any given day:

• Your employee parks their car (whether that be a car owned/leased by the employee or their associate, or a car that you provide to them) in a place that:
  • You own, lease or control (e.g. your business premises);
  • Is located in the vicinity of the employee’s primary place of employment; and
  • Has an entrance which is within 1km (by the shortest practical route) of the entrance to a commercial parking station that charges an all-day parking fee greater than $10.40 (tested on the first business day of the FBT year, being 3 April 2023);
• The car is parked for an aggregated total of more than 4 hours between 7.00am and 7.00pm for that particular day;
• Your employee drives the car between their home and work, or vice versa, at least once on that day; and
• You are not exempt from car parking fringe benefits (which is a narrow exemption for small businesses for particular parking facilities that are not commercial car parking stations).

Where a car parking fringe benefit has been provided to employees (based on the aforementioned criteria being satisfied for a particular day), employers must then assess the value of the car parking space and the number of fringe benefits provided during the FBT year in order to calculate their FBT liability. To determine the number of fringe benefits in the year, employers can elect to adopt the statutory formula method, the 12-week register method or the ‘actual’ method, which then requires the daily rate to be applied to calculate the taxable value of car parking fringe benefits for the year. As for determining the daily rate for each benefit, employers may choose to apply the commercial parking station method, the market value method or the average cost method.

Employers can qualify for a car parking fringe benefit exemption, though this is a narrow application only available if the FBT Small Business Entity concessions apply, the employer is an FBT-exempt employer, or if the parking is provided to an employee that holds a disability parking permit. If the car parking is provided occasionally, employers may also consider the minor benefits exemption.

Impact of TR 2021/2

Employers should now be familiar with Taxation Ruling 2021/2 Fringe benefits tax: car parking benefits (TR 2021/2), having come into effect on 16 June 2021 to apply to car parking fringe benefits provided from 1 April 2022. 

Expansion of commercial car parking facilities

TR 2021/2 expanded the ATO’s interpretation of ‘commercial car parking facilities’ to include parking facilities that charge under a penalty-rate system - that is, car parks that typically incentivise short term parking with low prices (or even free) for the opening period, but impose a penalty to discourage all-day parking. Sometimes referred to as ‘special purpose car parks’, broadly, this means that most shopping centres, hotels, airports, universities or hospital car parks, which were previously excluded as commercial parking stations (per guidance from the Australian Taxation Office in TR 96/26), may now be captured as ‘commercial car parking facilities’ and, thus, give rise to an FBT liability.

Clarification on ‘in the vicinity of’ and employee’s ‘primary place of employment’

TR 2021/2 also set out the Commissioner of Taxation’s view on what constituted a car park being ‘in the vicinity of’ an employee’s ‘primary place of employment’, following the Full Federal Court decisions in FCT v Qantas Airways Ltd [2014] FCAFC 168 (and subsequent Administrative Appeals Tribunal in Qantas Airways Limited and Commissioner of Taxation [2014] AATA 316) and Commissioner of Taxation v Virgin Australia Regional Airlines Pty Ltd [2021] FCAFC 209. Employers should note the following from these decisions:

• With respect to ‘in the vicinity of’, geographical barriers that create obstacles for employees to travel around (e.g. a freeway or airport) may result in a car parking no longer being ‘in the vicinity of’ their primary place of employment; and
• An employee’s ‘primary place of employment’ is a test considering a particular day’s work for the employee, which now specifically clarifies that, in instances where an employee has a home base of employment that they then vacate to perform work duties for a particular day (in the cases cited in the ruling, an airport), these home bases would be considered the primary place of employment on that particular day.

Other considerations for 2024 FBT compliance

Ensure the lowest price charged is a rate available to the general public

Although the ATO is yet to provide updated guidance in this respect (such as within its FBT Guide for Employers), the ATO has been reviewing its position on what is an accepted rate in terms of satisfying the legislative test of lowest fee charged to members of the public. This is specifically relevant to special purpose car parks that, typically, have a variety of differing rates depending on the category of ‘parker’. The narrower the category of parker, or the more restrictions placed on who may park at a car park, the less likely the ATO is to accept that rate as having been charged to members of the public.  We expect guidance in this respect to be released by the ATO in due course, but not necessarily before the lodgement deadline for the 2024 FBT return.  Keep this in mind when analysing rates for this FBT compliance period.

Impacts of increased public charges

Over the past 2 years we have seen an increase to car parking charges, particularly in major cities such as Sydney and Melbourne. This has been largely due to the reversal of concessional pricing that had been charged by commercial car parking stations (with operators previously reducing their charges to the general public as an incentive to refill car parks following the easing COVID-19 restrictions across), compounded with the impact of inflation over the last 12 months.

This can impact employers twofold - firstly, new car parking liabilities may be triggered for existing locations for the first time in 2024, particularly if the rate for commercial car parking stations within a one-kilometre radius had exceeded the threshold of $10.40 at the commencement of the 2024 FBT year. For instance, a car parking station charging $9.00 for car parking in the 2023 FBT year may have increased the price to $10.60 on 3 April 2023 (that is, the first business day of the 2024 FBT year), thus trigger a car parking liability that the employer previously did not have. Secondly, if car parking operators have recently (towards the end of the FBT year) had significant uplifts in their pricing, it may be more appropriate to consider a market valuation to value your car parking fringe benefit, rather than using average rates, as using year-end average rates may skew the valuation for the full FBT year.

In summary, employers should carefully monitor any changes in car parking fees and assess whether the car parking rates at the start of the FBT year exceeded the ATO threshold for 2024.

Impacts of new ways of working

The COVID-19 era has also redefined many standard and customary work practices. For many employees, working from home has become the new norm, which has led to a substantial decrease in car travel and the utilisation of car parking spaces.

A car parking fringe benefit only arises on a given day when an employee uses their car to commute between home and work, and parks it in a space provided by the employer in the vicinity of the employee’s place of employment. Under the statutory formula method, an employer is deemed to provide a car parking benefit 228 times during the FBT year, regardless of the number of the times an employee actually uses the car parking space. Whilst this method is favourable where an employer may not have access to the requisite car parking usage data (such as boom-gate log data), utilising the statutory formula method may not accurately reflect flexible work arrangements, wherein employees work from home more frequently and no car parking fringe benefit arises during that period. Employers should, therefore, consider using the ‘actual’ method, to help ensure that they do not incur excess FBT costs that are not representative of the actual benefits provided to employees, specifically where flexible working has had a reasonable uptake across the workforce or where there has been office restructuring that reduces the capacity for staff to come to the office, both of which would likely result in an employee using a car parking space for less than 228 days in an FBT year. 

If employers do not have access to car parking data for the full FBT year and, thus, practically cannot use the ‘actual’ method, it is also encouraged that employers consider the possibility of generating records over a continuous 12 week period to elect to calculate the taxable value of car parking fringe benefits under the the 12-week register method (which, in effect, should generate a similar outcome to the ‘actual’ method).

Data capabilities of car parking operators

Increased data capabilities of car parking stations may further encourage employers to turn to the ‘actual method’ to calculate their car parking liability. Employers may now have access to boom gate or swipe card data to analyse the number of car parking benefits provided to employees during the FBT year, including whether an employee has parked in a spot for a cumulative 4 hours in any given day, and determine the most cost-effective calculation method for reporting car parking fringe benefits. Furthermore, car parking data may provide useful insights on whether employers may need to increase or reduce the number of car parking spaces provided to their employees in general. With increased working from home arrangements, the ‘actual’ method reduces the likelihood of employers paying FBT on car parking spaces not fully utilised during the year. 

Reminder of the 12-week register method

As noted above, if employers do not have access to the requisite car parking data for the full year to use the ‘actual method’, they can also elect to use the 12-week register method. Under this method, you are required to keep a record of the actual number of car parking benefits provided to employees for a continuous period of 12 weeks which is representative of the FBT year. The number of benefits provided from this register can then be applied for the 2024 FBT year and a future 4 FBT years (unless the number of car spaces (or number of employees if less than the number of spaces) increases by more than 10%). Employers should consider this option where they have partial car parking usage data for the 2024 FBT year, and where the employee use of car parking is consistent during the FBT year. 

Utilising the market value method 

When assessing the value of the car parking space itself, employers have the option of electing to use the average cost method or the market value method. Given the increased record-keeping requirements and costs associated with the market value method (for example, an employer is required to obtain a valuation report from an independent valuer), employers generally turn to the average cost report when calculating the taxable value of a car parking fringe benefit. However, employers should consider whether a market valuation report is favourable in 2024, particularly in situations where the car parking fringe benefits only arise due to there being only a penalty-rate type operator within the vicinity of your car parking fringe benefits provided.

Focus from the ATO on record-keeping

The ATO Deputy Commissioner of Superannuation and Employer Obligations, Ms Emma Rosenzweig, stated that employers must ensure they have “adequate records available to determine if a commercial parking station is within 1km of a work car park”. As such, we encourage you to review any car parking arrangements that you currently have in place and adopt a calculation methodology to manage your FBT liability appropriately, in preparation for lodging your 2024 FBT return.

Recommendations

If you provide car parking fringe benefits to your employees, we strongly encourage you consider the following when reviewing your car parking arrangements for the current FBT year:

• Keep a register of all business premises where you operate and whether there are any car parking spaces/arrangements at those facilities.
• Further to the above, analyse what commercial car parking stations operate nearby to each location you provide car parking, particularly noting the risk of penalty-rate type car parking operators that had historically been excluded for FBT.
• Ensure the rates you intend to use are available to a sufficient section of the general public and monitor any further guidance released by the ATO in this respect.
• Consider the impact of any flexible working arrangements at any of your workplaces and determine whether adopting an alternative approach to determine the volume of benefits provided during the year is more appropriate, such as tracking usage under the 12 week register method.
• Investigate the public prices charged by car parking operators nearby to the car parking benefits you provide, particularly to consider whether there have been any reasonable increases that may warrant potentially adopting a different approach to value the taxable value per day.
• Revisit whether your business changed at all, either through remodelling of physical offices or office locations, or different business acquisitions (particularly those that were previously small businesses, etc.), that may result in changes to your car parking benefits to consider.
• Open communications with your car parking operator to understand whether they store car parking data which you can use to calculate the taxable value of your car parking fringe benefit.

If you have any questions relating to FBT or employment taxes more generally, please do not hesitate to reach out to your PwC representative.