Car parking provided to employees on site or near their office is a common benefit for many businesses. Many employers have previously been covered by the car parking fringe benefit exemption due to the business turnover or the absence of a commercial parking station within 1km radius of the business premises. However, a change to the meaning of ‘commercial car park’, as announced by the ATO in a recent ruling may impact car parking Fringe Benefits Tax (FBT) liabilities for affected businesses.
In particular, business that were previously able to assess car parking as FBT-exempt because the only nearby commercially operated car parks charged penalty rates for all-day parking (e.g. shopping centre car parks) may have significant FBT liabilities from 1 April 2022 as a result of this change.
When is a car parking fringe benefit provided?
A car parking fringe benefit may arise where an employee is provided with usage of a car park on business premises or the premises under the control of an associated entity. For a car parking benefit to be subject to FBT, all the following criteria must be satisfied:
- A car is parked at a premises that is owned or leased by, or otherwise under the control of, the employer (this includes, where an employer has an arrangement with an associated entity or an operator of a commercial parking station);
- Within a one-kilometre radius of the premises on which the car is parked, there is a commercial parking station that charges a fee for all-day parking, which is more than the car parking threshold ($9.25 for 2022 FBT year);
- The car is parked for a total of more than four hours between 7.00am and 7.00pm on the same day;
- The car is owned by, leased to, or otherwise under the control of, an employee, or is provided by the employer;
- The parking is provided in respect of the employee’s employment;
- The car is parked at or near the employee’s primary place of employment on that day;
- The car is used by the employee to travel between home and work (or work and home) at least once on that day, and
- The commercial parking station referred to above must also, on the first business day of the FBT year, charge a representative fee for all-day parking that is more than the car parking threshold.
FBT exemptions are available for car parking spaces provided in certain circumstances, including disabled parking, parking provided by registered charities, scientific institutions, public educational institutions and small or medium business employers.
Importantly, a car parking fringe benefit does not arise where you reimburse or pay for an employee's car parking costs. This should be classified as car parking expense payment benefit.
What’s changing? Expansion of small business car parking exemption.
Previously, the small business car parking benefits exemption applied to small businesses with an annual turnover of less than $10 million and who also satisfied all the following conditions:
- the parking is not provided in a commercial car park;
- the employer is not a government body, a listed public company, or a subsidiary of a listed public company;
- for the last income year before the relevant FBT year, either the employer's:
- gross total income was less than $10 million; or
- aggregated turnover was less than $10 million.
As announced in the Federal Budget on 6 October 2020, the small business car parking exemption will from 1 April 2021 include businesses with an aggregated turnover of less than $50 million.
What’s changing? The ATO’s revised definition of a commercial parking station.
An important factor in determining whether a car parking fringe benefit arises is the presence of a commercial parking station within a 1km radius of the employer provided parking facility. Noting the 1km distance is measured by the shortest practicable direct route (by whatever means this route is travelled, for example, by foot or car).
A recent development on the ATO’s definition of a commercial parking station could potentially increase the FBT liability of any affected businesses. The ATO’s previous view on commercial parking stations asserts that car parking facilities with a primary purpose other than providing all-day parking should not be considered as a commercial parking station. However, on 13 November 2019, The ATO issued a draft taxation ruling which broadens this definition. This new draft ruling will result in certain parking facilities now being classed as commercial parking stations which weren’t previously including shopping centres, hospitals and airports.
The draft ruling mentioned above is yet to be finalised but any changes are expected to apply from 1 April 2022.
What employers should do
If your business provides car parking to employees, it is important to consider the following:
- Whether the entity qualifies under the small business car parking exemption as a result of the increase in the turnover threshold to $50 million from 01 April 2021;
- Whether there is a commercial parking station within a 1km radius of the business premises that charges more than the threshold of $9.25 for 2021/22 FBT year;
- Whether your office was closed during the FBT year due to COVID-19, resulting in the subsequent closure of the employer provided parking facility;
- Whether the commercial car park is accessible via car or foot within 1km;
- Whether the employer provided parking facility is within the vicinity of parking facilities at shopping centres, airports and hospitals.
If you are not sure whether your business is eligible for car parking fringe benefit exemption or is potentially affected by the revised view of commercial parking, please contact your usual Mazars adviser, the author or speak to one of our tax advisory specialists via the form below or on:
Author: Sophie Chen
All rights reserved. This publication in whole or in part may not be reproduced, distributed or used in any manner whatsoever without the express prior and written consent of Mazars, except for the use of brief quotations in the press, in social media or in another communication tool, as long as Mazars and the source of the publication are duly mentioned. In all cases, Mazars’ intellectual property rights are protected and the Mazars Group shall not be liable for any use of this publication by third parties, either with or without Mazars’ prior authorisation. Also please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.