Government backs off on car perks but gets tough on parks

By BRIAN FALLOW

The Government is proposing to reduce the fringe benefit tax on vehicles but toughen the rules on employer-provided car parks.

An Inland Revenue discussion document released yesterday suggests reducing the tax on the private use of company-owned cars by cutting the rate used to value the benefit from 24 per cent of cost a year to 20 per cent. The change reflects lower motoring costs since the 24 per cent rate was set in the 1980s.

It is also proposed to give employers the option of valuing the vehicle for tax purposes on its depreciated book value rather than cost, in which case the equivalent rate would be 36 per cent. There would be a minimum value of $3000 a year.

The incentive to use various leasing structures to reduce fringe benefit tax liability would be removed by aligning the treatment of leased vehicles with those which are owned. An anomaly in the current treatment of car parks would be removed.

At present, because of an exemption for benefits provided "on the employer's premises", parks which are leased can be exempt while those which are licensed are not.

The Government agrees the distinction is arbitrary. "The legal rights enjoyed by the employer regarding the car park should not be relevant to whether a car park provided to an employee confers a private benefit to the employee."

It proposes to exclude car parks from the "on premises" exemption.

But that would mean that most employer-provided car parks, which are not subject to the fringe benefit tax, would be caught by it.

So it suggests various ways of limiting the scope of the tax, so as to target car parks which are provided in central business districts, where they can be worth $300 a month in avoided cost to the employee.

Submissions on the proposals close on February 27.

Read the discussion document