SENATE

Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)
THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE House of Representatives TO THE BILL AS INTRODUCED

Chapter 3 - Car Parking Benefits

Overview

3.1 The amendments in Schedule 3 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to reduce the cost to employers of complying with the requirement to pay fringe benefits tax (FBT) on car parking benefits. The amendments will:

·
ensure that FBT does not apply to car parking unless a commercial car park which charges more than $5 a day at the beginning of the FBT year is located within a one kilometre radius of the employer provided car parking facilities;
·
provide various options for calculating the taxable value of car parking benefits. These options will help to reduce the employer's costs in complying with the car parking provisions of the law;
·
make consequential amendments to section 51AGB of the Income Tax Assessment Act 1936 (ITAA).

These amendments are explained in Section 1 of this chapter.

3.2 Schedule 4 will make a technical correction to section 58G of the FBTAA so that car parking benefits provided to government employees in public educational institutions will be exempt from fringe benefits tax. This amendment is explained in Section 2 of this chapter.

Section 1 - Measures reducing the cost of compliance for car parking benefits

Summary of the amendments

Purpose of the amendments

3.3 Division 10A of the FBTAA will be amended so that:

·
one of the conditions that must be satisfied before a car parking benefit can arise will be changed so that a car parking benefit can only arise where there is a 'commercial parking station' within a 1 kilometre radius of the employer's premises that charges more than $5 a day at the beginning of the FBT year ;
·
employers will be allowed to value car parking benefits provided to employees and their associates under an average cost method [new section 39DA] ;
·
an employer can elect to use one of two alternative methods to calculate the total taxable value of car parking benefits provided in a year, i.e. the 'statutory formula' method [new Subdivision C of Division 10A of Part III] and the '12 week record keeping' method [new Subdivision D of Division 10A of Part III] .

3.4 Consequential amendments will also be made to section 51AGB of the ITAA. This section denies a deduction for car parking expenses incurred by self-employed persons. Amendments are required so that the amount of the deduction to be disallowed under this provision can be calculated on the same basis as the taxable value of car parking benefits is calculated under Division 10A of the FBTAA.

Date of effect

3.5 Subject to a transitional arrangement, the amendments will apply from the FBT year commencing 1 April 1995. [Item 9]

Background to the legislation

3.6 Certain car parking benefits provided to employees after 1 July 1993 are subject to FBT under Division 10A of the FBTAA.

3.7 Section 39A of the FBTAA sets out a number of conditions that must be satisfied before a car parking benefit can arise. One of these conditions, is that a commercial parking station is located within 1 kilometre of the employer provided car parking facilities.

3.8 The two methods for determining the taxable value of a car parking fringe benefit are set out in sections 39C and 39D of the FBTAA:

·
under the 'commercial parking station' method , the taxable value of the benefit provided is determined by reference to the lowest fee charged by the operator of a commercial parking station located within a 1 km radius in the ordinary course of business to members of the public for all-day parking on that day reduced by any employee contribution.
·
under the 'market value' method , an employer can elect to base the taxable value of the benefit on the market value of the car parking (as determined by a suitably qualified valuer) reduced by any employee contribution.

3.9 Under Division 10A there is no rule for determining the number of car parking spaces available. The Commissioner of Taxation has issued Taxation Ruling TR93/18 which sets out what records need to be kept by an employer to substantiate their liability to FBT in respect to car parking benefits. The records need to indicate the number of car parking benefits provided over the course of an FBT year.

3.10 As set out in Taxation Ruling TR93/18, one of these record keeping methods is the register system. Under this system, a register is to be compiled over a 12 week period in respect of all the vehicles to which the information will apply. The register can be used to provide an indication of the number of car parking benefits that have arisen in an FBT year.

3.11 This Bill will also amend section 51AGB of the ITAA. That section, which applies to certain non-employees, denies a deduction for car parking expenses where conditions similar to those in section 39A of the FBTAA apply. While the amount of the deduction denied is the actual amount of the expense incurred in providing the car parking facilities, a taxpayer may elect to choose an alternate amount based on either the 'commercial parking station' method of valuation or the 'market value' method of valuation.

Explanation of the amendments

Fringe benefits tax

Change to commercial parking stations within 1km rule

3.12 One of the conditions that must be satisfied before a car parking benefit can arise, as set out in subparagraph 39A(a)(i), is that there must be a commercial parking station located within a 1 km radius of the provider's premises.

3.13 New subparagraph 39A(a)(iii) will ensure that a car parking benefit will not arise where there is no commercial parking station operator within a 1km vicinity of the provider's premises who charges more than $5 a day at the beginning of the FBT year [item 1] . The amendment will confine FBT on car parking to areas where benefits have significant values, such as CBDs.

3.14 Any fee on the first business day of an FBT year that is not representative is to be disregarded. [Item 2, new sections 39AA & 39AB]

Valuation of car parking benefits under 'average cost' method

3.15 In addition to those existing methods set out in sections 39C and 39D, a further method for valuing car parking benefits will be provided by new subsection 39DA(1) [item 3] . An employer can elect that the method, called the 'average cost' method , can be applied to any or all of the employer's car parking benefits provided in an FBT year.

3.16 The 'average cost' method will enable the provider of the car parking benefit to determine the taxable value of a car parking benefit by reference to an average of the lowest fees charged by any operator of a commercial parking station within a 1km radius of the employer's premises on particular days, i.e. the first and last days of the FBT year on which a benefit was provided. The taxable value can be reduced by a recipient's contribution towards the benefit. [New subsection 39DA(2) & (3)]

3.17 The formula for determining the taxable value of the benefit is set out in new subsection 39DA(3) .

3.18 The lowest fee charged must be reasonably representative, i.e., it must not be substantially greater or less than the average daily fee charged by an operator 4 weeks either before and after the particular day. [New subsection 39DA(4)]

3.19 It will not be necessary for an employer to use the lowest fee charged on the relevant days by the same commercial parking station operator. If there is more than one commercial parking station operator within a 1 km radius of the employer's premises, the lowest fee charged by any of the operators on the relevant dates will be acceptable.

Alternative methods for determining the value of car parking benefits provided

3.20 New Subdivisions C and D in Division 10A will provide two alternative methods for valuing car parking benefits. If an employer does not choose one of these methods, the taxable value of car parking benefits will need to be determined according to one of the three methods set out in Subdivision B of Division 10A based on the number of actual car parking benefits provided.

Statutory formula method

3.21 An employer will be able to elect to calculate the total taxable value of car parking benefits provided in a FBT year by the statutory formula method under new Subdivision C. [Item 4]

3.22 It is not necessary for an employer to apply this method to all employees for calculating the number of car parking benefits provided. An employer may elect to apply the method to all employees, particular employees or class of employees. The amount calculated under this method will be the total taxable value for employees covered by the election. [New subsections 39FA (1), (2) & (3)]

3.23 The taxable value for each space for which there is at least one car parking benefit for an employee covered by an election is calculated by multiplying the statutory number of days (240) by the daily rate amount (the value of the benefit as determined under the 'average cost method' assuming no recipient's contribution).

3.24 However, where the space is available for only part of an FBT year this value will be reduced proportionately.

3.25 The total taxable value (i.e. total statutory benefits) will be the sum of each of these taxable values, calculated for all employees covered by the election. The total taxable value will be reduced by the sum of any recipient's contributions. [New subsection 39FA(4) and new sections 39FC, 39FD and 39FE]

3.26 Where the average number of spaces exceeds the average number of employees, the taxable value of benefits will be reduced by the formula set out in new section 39FB .

3.27

Example: An employer elects to use the statutory formula method to determine the taxable value of car parking benefits provided to 50 employees. The employer provides 60 parking spaces. The benefits are provided for only half of the FBT year and the taxable value of a benefit calculated under the 'average cost' method is $6. The taxable value of one benefit is $ 740, calculated as follows:

$6 * 240 * (188/366)

For the 50 employees the total taxable value is

$37,000 ($740 * 60 * 50/60).

12 week record keeping method

3.28 The 12 week register method is another method that an employer will be able to use to calculate the total taxable value of car parking benefits under new Subdivision D . [Item 4]

3.29 To use this method, a valid register must be kept. The employer must specify in the election whether the election covers all employees, employees of a particular class or to particular employees. [New section 39GA]

3.30 The total taxable value of car parking benefits provided during the full FBT year is based on the total value of car parking benefits provided during the 12 week period as determined by the register under the formula set out in new section 39GB . The number of benefits provided and the taxable value of those benefits (i.e. the total value of car parking benefits) can be determined from the register. The taxable value of car parking benefits can be determined by any of the methods set out in Subdivision B of Division 10A of the FBTAA, i.e. the 'commercial parking station' method , the 'market value' method or the 'average cost' method . [New sections 39GB, 39GC & 39GD]

3.31 Where the car parking benefits have been provided for a period less than a full year, the value of the benefits is reduced proportionately under the formula in new section 39GB .

3.32

Example: After keeping a register for a 12 week period, an employer determines that 250 car parking benefits each with a taxable value of $10 have been provided to employees from 1 October (half-way through the FBT year) to the end of the FBT year. The total taxable value of benefits provided is calculated as follows:

250 * 10 * (52/12) * (183/366)

3.33 If this method is used, a car parking register needs to be maintained by or on behalf of the provider for a continuous period of at least 12 weeks throughout which car parking benefits are provided to employees and their associates covered by the election. The period over which the car parking register is kept needs to be representative of car parking usage over the year of tax. [New section 39GE]

3.34 If the 12 week period is in the same FBT year the register can be used for that year and the next four years. If the 12 week period extends over two years, the register is not valid for the first year. [New subsections 39GF(1) & (2)]

3.35 A further register will need to be kept in the following FBT year where the number of car parking spaces (or the number of employees allowed to park if this is less) increases by more than 10 percent in a year. If more than one register is kept within a year the later one applies. [New subsections 39GF(3) & (4)]

3.36 The details that need to be recorded in the car parking register are set out in new subsection 39GG(1) .

3.37 The register applies to cars that are the subject of a car benefit, a car that is owned or leased to an employee or otherwise made available to an employee covered by the election. [New subsection 39GG(4))]

3.38 The entries need to be made as soon as practicable after a vehicle has entered or left the car parking facilities. [New subsection 39GG(2)]

3.39 A register is not valid if fraudulent entries are made in the register. [New section 39GH]

Transitional measure

3.40 As set out in paragraphs 17 and 19 of Taxation Ruling TR 93/18, a provider of car parking benefits can maintain a 12 week register to indicate the number of benefits that have been provided to employees and their associates during the course of an FBT year.

3.41 A transitional measure provides that, where a provider of car parking benefits has under a previous administrative arrangement (eg Taxation Ruling TR 93/18) maintained a 12 week register in determining the number of car parking benefits provided, this register may continue to be used for the purposes of the new measures providing the following conditions are satisfied:

·
it provides the information required for a register;
·
the number of car parking spaces (or the number of employees allowed to park if this is less) has not increased by more than 10 percent since the register was completed. [Item 10]

Consequential amendments

3.42 Amendments will be made to sections 39C and 39D to substitute 'a year of tax' with 'an FBT year', 'the year of tax' with 'the FBT year' and 'a particular year of tax' with 'a particular FBT year' [items 5, 6 and 7] . A definition of 'FBT year' will be inserted into subsection 136(1) of the FBTAA [item 4 in Schedule 6] .

3.43 An amendment will be made to subsection 39E(1) to replace "Subdivision" with "Division". Subsection 39E(1) contains a formula which provides for the calculation of a daily rate equivalent where, in the ordinary course of business, a commercial car parking station provides all-day parking to the public on a weekly, monthly, yearly or other periodic basis. Following the amendment to subparagraph 39A(a), the formula contained in this subsection will also be used for calculating the daily rate equivalent for all-day parking so it can be determined whether a car parking benefit can arise, i.e. if the daily rate equivalent is no more than $5, no car parking benefit will arise. [Item 8]

TABLE - How to determine the taxable value of car parking fringe benefits under division 10A

Income Tax

3.44 Section 51AGB of the ITAA which applies in relation to expenditure incurred by a taxpayer on or after 1 July 1994 operates to deny a deduction or reduce a deduction which would otherwise be allowable for car parking expenses incurred by self-employed persons.

3.45 This Bill replaces section 51AGB with a new Division 4A of Part III of the ITAA. New Division 4A has been drafted in the new plain English style and reflects the amendments made to Division 10A of the FBTAA. [Item 11]

3.46 Before this Division can apply, a number of conditions need to be satisfied. The conditions set out in subsection 51AGB(1) have been redrafted and are now included in new Subdivision A of the new Division.

3.47 A further condition that reflects the amendments made to Division 10A of the FBTAA is that there must be a commercial parking station located within a 1 km radius of the parking premises and the lowest fee charged by the operator of any such commercial parking station for all-day parking on the first business day of the year is more than $5 a day. [New paragraph 89AB(4)(d)]

Regulations to exclude certain cases

3.48 This Division also redrafts paragraph 51AGB(1)(h) so that the provision will not apply where there are regulations excluding the provision of certain car parking from the operation of this Division. [New Section 89AC]

Deduction calculated using approved valuation method

3.49 Under the new Division 4A of Part III of the ITAA, one of five valuation methods can be used to value the car parking provided. The calculation is necessary to determine the amount of deduction to be disallowed for car parking expenses. [New section 89B]

3.50 Two of the valuation methods that are available include the 'commercial parking station' method and the 'market valuation' method. These methods are presently contained in subsections 51AGB(3), (4), (5), (6), and (7) of the ITAA. The methods are now set out in Subdivisions C and D of the new Division and there has been no change in the way they operate. They apply in a similar manner to sections 39C and 39D of the FBTAA. [New sections 89B, 89C, 89CA, 89D, 89DA & 89DB]

3.51 As a result of the amendments to the FBTAA, three other valuation methods can be used to determine the amount by which the gross deduction allowable for car parking can be denied or reduced. These methods are the 'average cost' method, 'statutory formula' method and the '12 week record keeping' method. These methods are set out in Subdivisions E, F and G of the new Division. These methods operate in a similar manner to those contained in Subdivisions C and D and new section 39DA of Division 10A of the FBTAA. These provisions are explained above. [New sections 89E, 89EA, 89EB, 89F, 89FA, 89FB, 89FC, 89FD, 89G, 89GA, 89GB, 89GC, 89GD, 89GE, 89GF, 89GG & 89GH]

Anti-avoidance

3.52 The anti-avoidance measure contained in existing section 51AGB of the ITAA, is now included in the new Subdivision H of the Division 4A of Part III of the ITAA.

3.53 A further anti-avoidance measure is that, for the purposes of paragraph 89AA(4)(d), any fee charged by a commercial parking station operator after 31 March in a year that is not representative will be taken to be more than $5. [New section 89HA]

Interpretation

3.54 New Division 4A of Part III of the ITAA will include interpretation provisions.

3.55 Subsections 51AGB(8) and (9) of the ITAA have been redrafted and are now contained in new Subdivision J . [New sections 89J & 89JA]

3.56 An explanation of when fees are not representative is similar to that contained in new section 39AB of Division 10A of the FBTAA. [New section 89JB]

3.57 New Subdivision J also contains definitions for the new provisions. [New section 89JC]

Consequential amendments

3.58 Paragraph 51AGB(1)(i) will be amended so that the existing provisions no longer apply from 1 July 1995. [Item 12]

3.59 The Bill also amends subsection 262(4AK) to ensure the record keeping requirements for the report of a valuer as required under subsection 51AGB(7) also apply to new section 89DB . [Item 13]

Transitional measure

3.60 The Bill inserts a transitional measure for the purpose of the 12 week register method. If a register has been kept before the commencement of these measures then the register will be regarded as having been kept for the purposes of this method if it satisfies the necessary requirements. [Item 14]

3.61 A further transitional measure provides that if regulations have been made for the purposes of paragraph 51AGB(1)(h) they will also be taken to have been made for the purposes of new section 89AB. [Item 14]

Section 2 - Exemption of car parking benefits provided by government public educational institutions

Summary of the amendments

Purpose of the amendments

3.62 A technical correction will be made to section 58G of the FBTAA so that car parking benefits provided to government employees working in public educational institutions will be exempt from fringe benefits tax in the same way as car parking benefits provided to employees of non-government public educational institutions.

Date of effect

3.64 This amendment is retrospective. It will apply to assessments for the FBT year commencing on 1 April 1993, when FBT was imposed on car parking benefits, and later years. [Sub item 4(1) of Schedule 4]

Background to the legislation

3.65 A car parking benefit is provided, broadly, if commercial car parking is available and an employee is given car parking at the place of employment for a car used for travel to and from work.

3.66 Car parking benefits provided by certain employers, including public educational institutions, are exempt from tax under section 58G. On the other hand, government-provided benefits, including car parking benefits, are generally taxable.

3.67 The exemption provided by s.58G does not cover car parking benefits provided by a Commonwealth, State or Territory government educational institution because the employer is the Commonwealth, State or Territory government, not the public educational institution. This unintended outcome is contrary to the original intention of the provision, and will be corrected by this amendment.

Explanation of the amendments

3.68 Section 58G is amended so that car parking benefits provided by a Commonwealth, State or Territory government educational institution will be exempt car parking benefits. [Item 1 of Schedule 4; new subsection 58G(3)]


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