Edited version of your private ruling

Authorisation Number: 1012475057817

Ruling

Subject: Fringe benefits tax - car parking fringe benefits

Question 1

Does the provision of the non-designated car parking spaces by way of pre-paid daily vouchers give rise to car parking fringe benefits pursuant to Division 10A of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

Does the provision of pre-paid daily car parking vouchers to employees constitute a property fringe benefits or residual fringe benefit as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following periods:

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

The scheme commences on:

1 April 2012

Relevant facts and circumstances

The employer is a provider of services. As is generally commonplace for employers within the industry, the employer's business model caters for working flexibility within its employee pool whereby, in addition to full-time employees, the employer engages numerous casual and part-time employees. Many of employer's employees also work on a roster basis.

Due to the varying schedules for the casual, part-time and rostered employees, the number of car parking spaces required for employees at a given employer location will vary from day to day.

For one of the employer's locations in particular (location A), this has created an administrative/cost issue, because the employer is not in a position to lease a fixed number of parking spaces to provide to its employees.

Due to the above, at location A, the employer has been able to enter into an alternate mechanism for the provision of car parking spaces, whereby through the redemption of car parking vouchers purchased by the employer, an employee of the employer is entitled to park in any non-designated car parking space at a commercial car parking station (parking station B) adjoining location A that the employer has developed an ongoing business relationship with.

Parking station B is managed by operator C. The employer has developed a business relationship with operator C because, for the purposes of allocation to select staff members, the employer also leases a fixed number of designated car parking spaces at the parking station on a continuing basis.

Through this ongoing business relationship with operator C, the employer has an agreement through which the employer, in addition to the designated parking spaces leased at parking station B, is able to pre-purchase all-day parking vouchers in bulk from operator C, to be provided to relevant employees on a needs basis.

Any employee provided with the voucher can subsequently redeem the voucher at parking station B, and is entitled, through the redemption of the voucher, to park in any car parking space within the parking station that is not already marked out for a specific individual/company/car.

Following purchase of the above vouchers, the employer, at its absolute discretion, will provide the vouchers to relevant employees to be redeemed at the parking station for all-day parking. As noted above, the vouchers entitle employees to park in any non-designated car parking spaces within the parking station on the day of voucher redemption.

In some cases, when providing the voucher to relevant employees, the employer will require that the employee make an upfront cash contribution (to the employer) towards the voucher. In this regard, the vouchers are generally pre-purchased by the employer at a cost of $X and the upfront contribution required from employees is less than $X.

The decision to effectively pre-purchase these vouchers throughout the year (as opposed to being billed by Operator C post employees' use of the car parking spaces) is one of commerciality and practicality.

Adopting this mechanism allows the employer to pre-budget the relevant spend on providing car parking spaces, and also provides the employer with the flexibility to manage and coordinate allocation of the car parking vouchers on a needs basis.

As noted above, the number of car parking spaces required for employees will vary from day to day depending on employees' circumstances (such as, the working days/rosters for casual/part-time/roster employees, whether a given employee drives to work and therefore requires a parking space, etc).

Assumptions

For the facts and circumstances relevant to this ruling, the provision of non-designated car parking spaces at parking station B, to the employer's employees, satisfies conditions (b) through to (i) listed in subsection 39A(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 39A

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Detailed reasoning - question 1

Subsection 39A(1) of the FBTAA sets out the qualifying conditions which must be satisfied before the provision of car parking facilities will be taken to constitute a "car parking benefit".

These qualifying conditions are as follow:

(a) a car is parked at the provider's business/associated premises;

(b) a commercial parking station is located within 1km of the relevant premises;

(c) the lowest fee charged by that commercial car parking station, in the ordinary course of business, to members of the public, for all-day parking, exceeds the annual car parking threshold;

(d) the car is parked for an aggregate of more than 4 hours between 7am and 7pm on the day;

(e) the car is either owned/leased/otherwise under the control of an employee/employee's associate, or is provided by the employer/employer's associate;

(f) the parking is provided in respect of the employee's employment;

(g) the employee has a primary place of employment on the day that the parking is provided;

(h) on that day, the car is used by the employee to travel between the employee's place of residence and primary place of employment at least once; and

(i) the day is on or after 1 July 1993.

For the facts and circumstances relevant to this ruling, the provision of non-designated car parking spaces at the parking station, to the employer's employees, satisfies conditions (b) through to (i) listed above. Thus, for the purposes of this ruling application, you have not addressed the circumstances relevant to conditions (b) - (i) on the basis that these are non-issues for the scheme described under the relevant facts and circumstances in this ruling (provision mechanism).

Therefore, where the paragraph (a) qualifying condition above is satisfied, and on the basis that the parking station's provision of non-designated car parking spaces to the employer's employees satisfies the "arranger" provision threshold requirements, "car parking fringe benefits" will result for the employer under the outlined provision mechanism employed by the employer at location A.

Given this to be the case, for the facts and circumstances relevant to this ruling, under the above paragraph (a), the "provider" of the car parking spaces provided to employees, who redeem the all-day vouchers, must first be determined.

The above paragraph (a) condition is contained in sub-paragraph 39A(1)(a)(i) of the FBTAA, and outlines that a "car parking benefit" arises where the relevant car is parked on the provider's "business premises" or "associated premises".

Further, subsection 136(1) of the FBTAA defines "provider" as the "person who provides the benefit".

Subsection 136(1) also defines "business premises" and "associated premises", respectively, as follows:

· in relation to a person, means premises, or a part of premises, of the persons used, in whole or in part, for the purposes of business operations of the person...

· in relation to a person, means premises, or a part of premises, owned by the person, or leased by the person, or otherwise under the control of the person, but does not include business premises of the person...

The Commissioner of Taxation, in Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises', offers further guidance on the meaning of "business premises" under the above definition.

In TR 2000/4 the Commissioner outlines that two requirements must be met in order for the definition to be satisfied. The first limb requires an assessment as to whether, for the person under consideration, the premises or part of the premises are of the person. Where this first limb is met, the second limb requires that the relevant premises (or part thereof) be used for the business operations of the person.

In relation to the first limb, the Commissioner explains that the key determinant is the right to occupancy/possession of the relevant premises.

In other words, from TR 2000/4, as a starting point, the subsection 136(1) definition of "business premises" requires an assessment as to the occupancy/possession rights for the pertinent premises.

For the facts and circumstances relevant to the parking provision mechanism employed by the employer at location A, in the National Tax Liaison Group (NTLG) FBT Sub-committee Minutes of 10 December 1998, the ATO has previously addressed a similar query as to the identity of the "provider" in such circumstances where an employee is able to park in a non-designated space within a commercial car parking station.

In applying the principles described above, relevant to the definition of "business premises", the ATO outlined that generally, where there is no designated car parking space for the employer, such that the operator of the commercial car parking station retains ownership or other occupancy rights in respect of the car parking space occupied by the employee on any given day, the space is the "business premises" of the operator of the commercial car parking station and it is therefore the operator (rather than the employer) that will be the "provider".

If, on the other hand, there is a designated car parking space for the employer such that the employer has occupancy rights for that space (for example, a designated car parking space reserved for an employee of the employer), then the space is the employer's "business premises" and therefore the employer will be the "provider".

Based on the employer's facts and circumstances in relation to the outlined parking provision mechanism at location A, whereby the employer's employees are provided a non-designated car parking space after redemption of an all-day parking voucher, it would follow that it is operator C that is the "provider" in relation to the car parking spaces provided.

That is, for the outlined parking provision mechanism, on the basis that the vouchers entitle employees to parking only in non-designated car parking spaces within the parking station, the circumstances are more akin to the former scenario described in the NTLG FBT Sub-committee minutes referenced above.

On the basis that operator C is the "provider" for the purposes of subparagraph 39A(1)(a)(i), it would then follow that a "car parking fringe benefit" will arise for the employer, pursuant to Division 10A of the FBTAA, where the provision of the non-designated car parking space to the employee by the parking station falls within the "arranger" provisions threshold requirements.

Application of the "arranger" provisions to the parking provision mechanism

Subsection 136(1) of the FBTAA states that a "fringe benefit", in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit -

(a) provided at anytime during the year of tax; or

(b) provided in respect of the year of tax,

being a benefit provided to the employee or to an associate of the employee by -

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement between:

i. the employer or an associate of the employer; and

ii. the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

i. participates in or facilitates the provision or receipt of the benefit; or

ii. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so (emphasis added).

As noted above in the definition of "fringe benefit", a fringe benefit arises under paragraph (e) where a benefit is provided under an "arrangement" between the employer (or an "associate" of the employer) and an "arranger".

"Arrangement" is defined in subsection 136(1) of the FBTAA, paragraph (a) of which reads:

any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings...

The effect of this definition is that FBT applies to non-cash benefits provided to an employee in respect of the employee's employment, by their employer, an "associate" of that employer (e.g. a parent company), or by a third party under an "arrangement" with their employer (i.e. an unrelated organisation).

The terms "agreement", "understanding", "promise" or "undertaking" are not defined in the FBTAA and therefore take on their ordinary meaning. The Macquarie Dictionary defines each of these terms as follows:

· "Agreement" includes the act of coming to a mutual arrangement; the arrangement itself; unanimity of opinion; the state of being in accord; and consent agreement...

· "Understanding" includes a mutual comprehension of each other's meaning, thoughts, etc; state of (good or friendly) relations between persons; and a mutual agreement of a private or unannounced kind...

· "Promise" includes a declaration made, as to another person, with respect to the future, giving assurance that one will do, not do, give, not give, etc., something; an express assurance on which expectation is to be based; something that has the effect of an express assurance; indication of what may be expected; and to assure (used in emphatic declarations)...

· "Commission" includes the act of someone who undertakes any task or responsibility; a task, enterprise, etc., undertaken; and a promise; pledge; guarantee.

Based on the facts and circumstances relating to the employer's outlined parking provision mechanism at location A, whereby, via an agreement between operator C and the employer, The employer's employees are able to redeem pre-purchased parking vouchers to access non-designated parking spaces within the parking station, we agree that the definition of "arrangement" under paragraph (e) of the definition of "fringe benefit" is satisfied.

At the very least, the pre-payment by the employer for non-designated car parking spaces, and the subsequent distribution of relevant redeemable all-day parking vouchers to employees, signifies an "understanding", if not an "agreement", between the employer and operator C in relation to operator C's provision of the benefit to the employer's employees.

To this end, you note that, in the previously referenced NTLG Sub-committee Minutes of 10 December 1998, the ATO's view was that a post-payment scheme established with a commercial car parking station, under a similar agreement wherein an employer's employees were able to park in non-designated car park spaces within the station, would satisfy the definition of an "arrangement" under the FBTAA.

Further, in the NTLG FBT Sub-committee Minutes of 9 August 2012, in considering the very issue of pre-paid car parking vouchers in the context of the "arranger" provisions, the ATO outlined that, where an understanding exists between a car parking operator and an employer in relation to the benefit, prepayment (rather than post-payment) does not change the outcome in terms of the existence of an "arrangement" between the parties relating to the benefit provision.

The Explanatory Memorandum (EM) to Act No 16 of 1999, which has restricted the definition of "arrangement" (per subsection 136(1) of the FBTAA) to paragraph (a) only, of that definition, for the purposes of the definition of "fringe benefit", provided the following synopsis as to the general circumstances in which an "arrangement" gives rise to a "fringe benefit":

Benefits provided under an arrangement

2.38 Paragraph (e) of the current definition of 'fringe benefit' in subsection 136(1) of the FBTAA will be amended to confine the scope of this provision to arrangements covered by paragraph (a) of the definition of 'arrangement'. [Item 5] Paragraph (a) describes different kinds of arrangements and covers agreements, arrangements, understandings, promises and undertakings. In general terms, a fringe benefit will arise where a third party benefit is provided and there is some form of agreement between the employer and the third party.

As outlined in the EM passage above, the key is that there is some form of agreement between the employer and the third party in relation to the provision of the third party benefit. In this instance, it is the employer's ongoing business relationship with operator C that affords it the capacity to, under an understanding with operator C, pre-purchase redeemable parking vouchers that enables its employees to access car parking spaces with the parking station upon redemption.

Despite the above, should it be assessed that paragraph (e) above requires a greater agreement threshold between the parties, paragraph (ea) of the definition of a "fringe benefit" will be clearly satisfied in relation to the outlined parking provision mechanism employed by the employer at location A.

Paragraph (ea) is satisfied where the employer knowingly "participates in or facilitates" the provision/receipt of the benefit or promotes the scheme under which the benefit was provided (and ought reasonably to know that they were in fact doing so).

The FBTAA does not define "participates in" or "facilitates" as referred to in paragraph (ea) above and so these terms take on their ordinary meaning. The Macquarie Dictionary defines each of these terms as follows:

· "Participate" is taken to mean ...to take part of have a part...

· "Facilitate" is taken to mean ...help forward (an action or process)...

Paragraph 2.44 of the EM to Act No 16 of 1999 which introduced this provision gives some indication of what the provision is intended to capture:

2.44 An employer would not necessarily be liable for FBT for a third party benefit merely because the employer was involved in relation to the benefit. A third party benefit would be a fringe benefit only if the employer knew, or ought reasonably to have known, that he or she was involved in relation to a third party benefit. For example, an employer will not be able to avoid liability for a third party benefit simply by claiming that he or she did not know or realise that their involvement resulted in a third party providing benefits to the employer's employees or associates of employees and that any involvement in the provision or receipt of the benefit was unintentional.

In relation to the outlined parking provision mechanism, it is clear that not only is the employer aware that car parking spaces are being provided to its employees by the parking station, but, more importantly, the employer is taking part or helping to facilitate the provision or receipt of the benefit.

The employer's involvement in the benefit provision is twofold. Firstly, it is the employer, through its business relationship with operator C that initially acquires the vouchers through pre-payment. Secondly, the employer is the responsible party in terms of commencing the overall process for benefit provision to employees, through the actual physical distribution of the redeemable parking vouchers to pertinent employees.

As such, the "arranger" provisions threshold, under paragraphs (e) and/or (ea), is clearly met in relation to operator C's provision of car parking spaces to the employer's employees.

Detailed reasoning - question 2

The provision of the non-designated car parking space falls within Division 10A of the FBTAA as a car parking fringe benefit. Notwithstanding that the provision of the car parking space is transacted via the provision of all-day parking vouchers, the benefit cannot also of itself be considered a separate property fringe benefit (pursuant to section 40 of the FBTAA) or a residual fringe benefit (pursuant to section 45 of the FBTAA).

Relevant definitions are contained in subsection 136(1) of the FBTAA and are as follow:

"Property fringe benefit" means:

...means a fringe benefit that is a property benefit.

"Property benefit" means:

...a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

"Property" means:

(a) intangible property; and

(b) tangible property.

"Tangible property" means

goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

"Intangible property" means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(d) a right arising under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property.

As a result of the exclusion in the definition of "property benefit", where a benefit falls within one of the provisions of Subdivision A of Divisions 2 to 10 (inclusive) of Part III it cannot also be considered a property benefit (or property fringe benefit).

We note that for the purposes of the definition of property benefit, a car parking fringe benefit under Division 10A does NOT fall within Divisions 2 to 10. As such, this exclusion cannot apply in respect of car parking benefits.

Importantly, it is not the tangible voucher that is the benefit to the employee. Rather, it is the intangible right that is conferred under the voucher, which is effectively a license for the employee to make use of operator C's premises for the duration of the day of redemption, that is the benefit to the employee.

As relevant to the definition of "property benefits", since the definition of "intangible property" contained in subsection 136(1) of the FBTAA specifically excludes "a lease or license in respect of real property or tangible property", the provision of the pre-paid daily car parking vouchers to an employee of the employer under this arrangement cannot give rise to a "property fringe benefit".

A "residual fringe benefit" is defined in subsection 136(1) to be a "fringe benefit that is a residual benefit".

In turn, a "residual benefit" is defined in section 45 as follows:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 - 11 (inclusive).

Therefore, this definitional caveat excludes a benefit that falls within one of the provisions of Subdivision A of Divisions 2 to 11 (inclusive) of Part III (e.g. a "car parking fringe benefit under Division 10A") from also being a residual fringe benefit.

Hence, on the basis that operator C's provision of non-designated car parking spaces is classified as a "car parking fringe benefit" under Division 10A of the FBTAA for the employer, the provision of the pre-paid daily car parking vouchers cannot also be a residual fringe benefit.

Conclusion

Under the outlined parking provision mechanism employed by the employer at location A, where an employee redeems a pre-paid car parking voucher at the parking station, a "car parking fringe benefit", pursuant to Division 10A of the FBTAA, results for the employer.

More particularly:

· under the parking provision mechanism, whereby an employee of the employer redeems pre-paid car parking vouchers, originally issued by operator C to the employer, to access a non-designated car parking space within the parking station, it is operator C that is the "provider" of the "car parking benefit", and

· operator C provides the non-designated car parking space to the employee under an "arrangement" with the employer, and/or the employer knowingly participates in/facilitates the provision/receipt of the car parking space to/by the employee, and

· the employer's provision of the pre-paid car parking voucher does not constitute the provision of a separate property fringe benefit or residual fringe benefit pursuant to subsection 136(1) of the FBTAA.

Please note that the views expressed in NTLG FBT Subcommittee meeting minutes are not binding on the ATO. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only and care should be taken in interpreting those statements. Further, they reflect the position at the date of their release and readers should note that the position on any issue may subsequently change.