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Landing on the “free parking” space

Tax Alert - August 2015

By Mike Williams and Conor Gates

On 22 July 2015, the Commissioner of Inland Revenue released a new draft public ruling Fringe Benefit Tax – Exclusion for carparks provided on an employers’ premises to clarify the fringe benefit tax (FBT) treatment of car parking facilities provided to employees on the employer’s premises.

The draft ruling seeks to clarify situations where the “on premises” exemption within the FBT rules might still apply to certain circumstances where the parking facilities are provided under a licence agreement rather than a lease agreement, provided the licence agreement allows the employer “substantially exclusive” use.

This is a positive development from the Commissioner to bring more clarity and certainty to this position, and a refreshing change when you consider that, not that long ago, moves were afoot to dramatically increase the exposure to FBT on employer provided car parking.   When the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill 2013 first was introduced to Parliament, it was clear that Inland Revenue’s intent was to dramatically broaden the FBT net to include any and all carparks provided to employees whether provided on the employer’s premises or not.  After a very vocal protest from the taxpaying community the Bill was ultimately passed but the measures to increase the scope of FBT on car parking were left out (along with other unpopular changes to the FBT rules).  

Inland Revenue’s position on the “on premises” exemption and car parking dates back to 1999 where the Commissioner released Public Ruling BR 99/6 setting out a view on circumstances where the on premises exemption applied under what is now section CX 23 of the Income Tax Act 2007, although this previous ruling deals primarily with owned or leased propertyThis new draft ruling reiterates the position taken in BR 99/6 and explains in detail the Commissioner’s view of whether a car park is considered to have been provided on the employer’s premises or not.  Inland Revenue has provided a number of helpful examples to illustrate when a car park is considered to be provided on premises or not, expanding on the examples provided with BR 99/6.

Of greater interest in the new draft ruling is the consideration of the ‘lease versus licence’ argument which confirms the Commissioner’s view that, where an employer has, in fact or effect, the exclusive rights to the car park,then the car park is considered to be on the employer’s premises.  This is the case, even if the car parking facility is secured under a licensing agreement, provided that the agreement has the effect of giving the employer exclusive usage.

Whether an employer has an exclusive right is a matter of fact.  The exposure draft sets out a number of indicative factors that assist in determining whether an employer has exclusive rights of a car park or not.  In essence unless a car park is specifically identifiable, can only be used by people authorised by the employer on an as/when basis and the arrangement cannot be altered unilaterally, the car park is potentially subject to FBT.  The Commissioner is clear that in instances where an employer simply provides employees with access to car parks under a traditional licence arrangement the car park is still deemed to be a benefit provided off the employer’s premises and therefore subject to FBT.

Deloitte views this draft ruling as a very positive move in the right direction for New Zealand’s FBT regime that rightly recognises situations in which the words may say one thing but the facts and the detail suggest another.

The draft ruling is open to submissions until 2 September 2015. Please contact your Deloitte tax advisor if you wish to make a submission or would like to discuss this, or any other issue in more detail. 

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