Legislation has been introduced into Parliament to tax certain car parks provided to employees.The principles behind this legislation is that the IRD wishes to achieve “greater fairness between those who receive non cash benefits as part of their remuneration, and those who receive only cash remuneration”.
According to the IRD ‘the new rules balance achieving a more equitable and efficient outcome against the compliance costs associated with doing so. For compliance reasons the rules therefore primarily focus on the largest benefits which are currently not taxed”.
The IRD further state “… the proposed approach has needed to cover both implicit and explicit salary trade-offs and to provide detailed rules about what situations are covered”.
Therefore the IRD’s argument appears to be that car parks are provided to employees as an implicit or explicit trade-off for cash. This appears rather extraordinary and appears to ignore the fact that employees are often required to use their car for business purposes, and that is why the car park is provided. Of course there will always be circumstances where the IRD’s position is correct and in which case the proposals are justified, however in a significant number of instances the IRD’s position is incorrect.
An example is a representative who is on the road most of the day, but regularly comes back to the employer’s premises to collect samples, prepare proposals etc. The car park isn’t a benefit; it is a necessity, and part of operating efficiently.
The key aspects of the proposed legislation are:
- The application date is 1 April 2014.
- The exemption of motor vehicle parking ‘on premises’ will be removed.
- Any taxable benefit is generally no longer an unclassified benefit, but will be attributed to the employee in a way similar to attributing motor vehicle benefits, unless the car park is a pooled car park.
The availability of a car parking space to an employee will be a fringe benefit in any of the following situations:
- The parking space is in the CBD of Auckland and Wellington;
- The parking space is provided to the employer by a commercial car park operator (outside of Auckland and Wellington), and the consideration paid by the employer is more than the specified amount. The anticipated specified amount is likely to be $210 per month;
- When the employee would be entitled to a greater amount of employment income had they chosen not to receive the parking benefit.
Allocated and unallocated car park spaces:
An allocated car park will be a fringe benefit if the employer makes the car park available to the employee and the use of the space is not restricted to a ‘business or certificated vehicle’.
A ‘business or certificated vehicle’ refers to vehicles which are either:
- Vehicles with a valid disabled parking permit;
- Work related vehicles as defined by the FBT rules (usually vans or utility vehicles);
- Vehicles which are made available to multiple employees for business purposes during business hours, and is not available for private use by the employees (other than any incidental private travel while using the vehicle for business).
Where there are un-allocated car parks the same rules apply as if a car park was allocated, except when there are more users than car parks, (in this instance a reasonably complex formula will apply) or where the employee is restricted to using the space for only a business or certificated vehicle, or where a restriction applies so the employee can only park outside the hours of 6.00am to 10.00pm.
What is the value of the car park?
There are three different values which may apply, however they are all calculated on a daily basis:
- When the parking space is provided by a commercial car park operator, the value is equivalent to the amount charged to the employer for the parking space;
- The IRD will set a standard value to be used if the parking space is in the CBD of Auckland or Wellington and is not provided by a commercial car park operator. This value is likely to be $250 per month. This value is to be used regardless of whether the employee has opted to receive a smaller amount of employee income in exchange for the car park;
- If the parking space is not provided by a commercial car park operator, and is not in the CBD of Auckland or Wellington, it can only be a fringe benefit if the employee would have been entitled to a greater amount of employment income had they not opted to receive the car park. Therefore the value of the benefit is the amount of extra employment income the employee would have been entitled to, had they not chosen to receive the parking space.
Can a test period be used?
Subject to some restrictions, a test period of at least two months can be applied for up to three years.
So what should employers be doing?
Employers should firstly understand the new law, and then assess the effect on their current employment arrangements.
Employers should then determine what (if anything) they can do to reduce any impact, such as changing employment contracts for new employees or altering existing employee contracts to reduce the availability of a car park, or altering the types of vehicles made available to employees.
It is important to note that the rules for calculating the value of the fringe benefit are complex, especially where businesses have more staff than car parks (which is commonly the situation).
Care should therefore be taken when doing the calculations. It may even be beneficial for businesses to get their tax advisor to review their initial calculations when the changes are first implemented.