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Taxation Laws Amendment (Car Parking) Bill 1992

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House: House of Representatives Portfolio: Treasury

Purpose To impose the fringe benefits tax on certain employer subsidised car parking facilities that are located within one kilometre of a commercial car parking station and the remove the deduction for certain car parking expenses.

Background Car parking spaces provided by an employer are currently exempt from the fringe benefits tax (FBT) under section 58G of the Fringe Benefits Tax Assessment Act 1986 (the Principal Act). The decision to include car parking spaces provided by an employer that are located within one kilometre of a commercial car parking station was announced in the 1992 Budget. It was also announced that the value of the car parking space for FBT purposes will be determined by reference to the lowest cost all- day commercial parking available within a one kilometre radius, and that the measures would apply from 1 April 1993.

The proposal has been supported on the grounds that car parking spaces provided to employees free of charge or at a reduced cost confers a similar non- salary benefit to the employee as other, taxable fringe benefits; it will remove the distinction between those who receive subsidised car parking and those who pay for it from their after tax income; and that the benefit can be substantial, particularly in the main capital cities where car parking facilities can be quite valuable.

Opposition to the proposal has centred on both its effects and operation. A number of groups, including the Retailers Council of Australia and the Building Owners and Managers Association, have argued that the tax will discriminate against businesses based in the central areas of cities where the majority of commercial car parks operate. This is based on the tax increasing the operating costs of such businesses making them less competitive with suburban based businesses and encouraging them to move out of the city. (However, it can be argued that businesses located in central city areas already face higher costs in a number of areas, such as rent, and the additional cost imposed by this measure will not greatly effect their costs relative to those businesses located further than one kilometre from a commercial car park.)

Major concerns were also expressed about the coverage of the proposals. As announced, the tax will apply to any employer subsidised car park within one kilometre of a commercial car park, which will include parking provided at schools, hospitals, airports, factories (e.g. factories within a kilometre of an airport even where other parking in the area is free) and other institutions. The proposals as announced would also apply to parking at any time. Following these objections, changes to the proposals were made shortly before the introduction of this Bill. The major changes are that the measure will only apply to parking between 7 a.m. and 7p.m. and for parking of four hours or longer. As well, the proposal will now apply from 1 July, rather than 1 April, 1993.

The other major concern with the proposal is the difficulty in administration. The Institute of Chartered Accountants in Australia commented in a Media Release dated 8 November 1992 that `The whole basis of the tax is so ridiculous it is hard to believe the Government's proposals are serious.' Their main objections to the proposal were that employers will be required to determine if they are within one kilometre of a commercial car park, which may be difficult to determine in marginal cases without measuring the distance (also see below for the definition of when commercial car parking stations are taken to be located within one kilometre - proposed section 39B) and that to determine the taxable value of the benefit employers will be required to monitor the price of car parks operated within the kilometre limit. Variations in this value will also make the calculation of liability over a period a complicated exercise.

It should also be noted that owners of non- residential car parking spaces in the City of Sydney, North Sydney and Milsons Point are required to pay an annual levy of $200 per space. This levy was introduced by the N.S.W. government from 1 July 1992 and means that employers in these areas may be liable to the levy as well as the FBT.

Main Provisions Clause 4 will insert a new Division 10A, titled Car Parking Fringe Benefits, into the Principle Act. Proposed section 39A deals with when such a benefit will be taken to have been provided. This will occur where: * the car is parked between 7a.m. and 7p.m. on the business premises, or associated premises, of the provider of the benefit (basically other premises, other than business premises or premises used for employee accommodation, under the ownership or control) and there is a commercial parking station (i.e. a permanent facility where spaces are available to members of the public for a fee) within a radius of one kilometre of those premises (N.B. not where the car is parked);

* the car is so parked for a period or periods that exceeds four hours;

* a car benefit was provided to the employee on the day when the parking was provided, the car was owned by or leased to the employee or provided by a person other than the employer;

* the car parking was provided in connection with employment;

* the employee has a primary place of employment (i.e. the place at which, or from, the employee performs their duties of employment); * the car is parked at, or in the vicinity of, the primary place of employment:

* the car is used for transport between the employees place of residence and primary place of employment;

* the car parking is not excluded by the regulations; and

* the day on which the car is parked is on or after 1 July 1993.

Proposed section 39B deals with when premises will be taken to be within one kilometre of a commercial parking station. This will be where, taking the shortest practicable route, a car entrance to the parking station is less than one kilometre from a car entrance to the premises. As a result of this definition, if one entrance to the premises satisfies the test, all employer subsidised parking at the premises will be covered.

The taxable value of a car parking fringe benefit is dealt with in proposed section 39C. For a year, this will be calculated by adding together the daily taxable value. The daily value will be the lowest fee charged by a commercial parking station within the one kilometre radius for all- day parking, reduced by any contribution made by the employee.

Where parking fees are based on a weekly, monthly or other periodic basis, the fee paid for the purposes of the FBT will be taken to be this amount divided by the number of business days in the period (i.e. days other than weekends and public holidays) (proposed section 39D).

Under the anti- avoidance provisions contained in proposed section 39D, where a lower fee is charged to enable a reduction in the FBT payable, the fee charged will generally be taken to be that which would be charged if the transaction was at arms length.

Clause 5 will remove the exemption for car parking contained in section 53G of the Principal Act.

Income Tax Assessment Act 1936 Where a car is used to produce assessable income, expenses including parking fees are deductible. Clause 9 will insert a new section 51AGA into this Act to deny the deduction for certain car parking expenses. The deduction will not be allowed for parking expenses where on or after 1 July 1993: * the employee has a primary place of employment;

* the car was parked at the primary place of employment for four hours or more between 7a.m. and 7p.m.;

* the car was used to travel between the employees residence and primary place of employment; and

* the car parking is not excluded by the regulations.

Under clause 10, the above amendment will apply from 1 July 1993.

Bills Digest Service 12 November 1992 Parliamentary Research Service

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1992

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Published by the Department of the Parliamentary Library, 1992.