Greg Neill: Employer-provided carparks and FBT can be confusing

A carpark that is merely licensed may be regarded as being on the "premises" of an employer, provided that the employer has a "substantially exclusive" right to use the carpark, says IRD.

INLAND Revenue has recently released a draft public ruling in relation to carparks provided by employers to their employees and whether those parks may be subject to fringe benefit tax.

Currently carparks that are provided "on the premises" of an employer are not subject to FBT.

The published interpretations of Inland Revenue have historically stated that, in order to constitute "premises" of the employer, the carparks must be either owned or leased by the employer.

That means that parking provided under legal rights amounting to less than a leasehold interest, such as a licence, would not qualify as "premises".

That distinction has always seemed a rather technical one, given that it is purely a test of legal rights and, as a practical matter, the same benefit is provided to the employee in either case.

The latest views from Inland Revenue seem to relax this stance somewhat.

It is now stated that a carpark that is merely licensed may be regarded as being on the "premises" of an employer, provided that the employer has a "substantially exclusive" right to use the carpark.

This means that no one else, including the owner, the carpark operator or any other third party, can use or control the use of the carpark in a manner inconsistent with the employer having a substantially exclusive right.

The Inland Revenue statement provides a list of practical considerations that might indicate whether an employer has a substantially exclusive right to use a carpark.

These include the employer having unrestricted access to the carpark, the parks remaining vacant when not used by the employer, and the employer having the ability to take steps to remove any unauthorised vehicles.

It is important for employers to remember that labels on documents are not determinative of the nature of the legal rights and obligations created.

Even if a car parking agreement is headed up as a "lease", it could be the case that the agreement actually creates a lesser right, such as a licence.

For example, if an allocation of particular spaces is provided for in the agreement, but the "lessor" is able to amend that allocation from time to time at its sole discretion or if others have the ability to use or access an employer's carparks.

In such cases, the current interpretation being adopted by Inland Revenue will be of direct relevance to the FBT position.

The deadline for submissions is September 2.

Greg Neill is head of tax advisory at Crowe Horwath, Hastings, Napier and Waipukurau, and can be contacted at: greg.neill@crowehorwath.co.nz
This information is general in nature and readers should seek specialist advice before making financial decisions.