Movement at the FBT station: COVID-19 tests, car parking

FBT is invariably seen as a relatively slow-moving and quiet area of tax law. But Budget day this year saw some movement at the FBT station, specifically regarding COVID-19 tests provided to staff, and also car parking benefits.

FBT and RATs for employees

There’s always a catch with FBT, isn’t there? With the introduction of a specific individual income tax deduction, employers can reduce their FBT liability, but there’s a catch in the fine print.

The 2022–2023 Federal Budget included a measure previously announced regarding the Federal Government’s intention to ensure that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals from 1 July 2021.

The associated legislation containing this measure, the Treasury Laws Amendment (Cost of Living Support and Other Measures) Bill 2022, passed both houses of Parliament without amendment and received assent on 31 March 2022.

COVID-19 tests, including rapid antigen tests (RATs), provided by employers to employees (whether directly or through a third party under an arrangement, or as a reimbursement of the cost to employees) are considered benefits under the FBT regime.

However, by allowing for an individual tax deduction, the new measure also allows for the operation of the “otherwise deductible” rule to reduce the taxable value of the benefit to zero.

The result? By introducing a specific individual income tax deduction, employers would also not have to pay FBT.

Neat solution. Well, apart from the catch. In paragraph 2.25 of the Explanatory Memorandum to the passed Bill, we see:

The existing FBT record keeping requirements apply. Where the “otherwise deductible” rule is applied, the employer would need to ensure they have the relevant documentation and employee declarations to substantiate the extent to which the benefit provided would have been “otherwise deductible” to the employee.

Specifically, employee-level declarations could be required when the provision of the RAT is a property fringe benefit (that is, legal ownership of the item passes from the employer to the employee).

Where the RAT is provided by way of an expense reimbursement or residual benefit, an employer-level declaration is available (that is, one declaration signed by the public officer on behalf of each employing entity lodging an FBT return to declare that there is no private use).

Now, in case you’ve just decided in about 30 seconds that collecting hundreds or thousands of employee-level paper declarations is not how you’d like to spend the coming weeks, we see three options at this stage:

• assess the potential application of the minor benefit rule to your fact pattern;
• explore your policy and processes to determine whether the benefit provided could meet an exemption or documentation exception; and
• use an automated, electronic declaration tool to at least take out some of the pain from the process (if doing so, consider a recurring declaration which would last for five years).

We know there will be a number of developing fact patterns and in lieu of this less-than-perfect practical outcome, likely some further consideration by practitioners of the limits of the interpretation of other exemptions within the FBT Act (that do not require employee level declarations).

“Commercial parking station” definition under review

The Federal Government will undertake consultation with the intent of amending the definition of “commercial parking station” to restore the previously understood application of FBT to car parking benefits.

Amid the build-up to the Federal Budget on 29 March 2022, the Assistant Treasurer announced by media release that the Federal Government will be undertaking consultation with the intent of restoring the previously understood application of FBT to car parking fringe benefits.

By way of a reminder:

• a car parking fringe benefit can only arise where the employee parks their car for at least four hours during a daylight period in an employer-provided space in the vicinity of the principal workplace;
• a further requirement is that there is a commercial parking station that charges more than a threshold amount (currently $9.25) for all-day parking within one kilometre of the entrance to the employer’s car park; and
• “all-day parking” means parking for a continuous period of at least six hours between 7 am and 7 pm.

The scope of the term “commercial parking station” is therefore fundamental to the determination of whether an employer has taxable car parking benefits.

Broadly, a commercial parking station is a commercial car parking facility where car parking spaces are, for payment of a fee, available in the ordinary course of business to members of the public for all-day parking.

The ATO issued TR 2021/2 on 16 June 2021, in which the Commissioner no longer applied the interpretation that car parking facilities with a primary purpose other than providing all-day parking, usually charging significantly higher rates, were not commercial parking stations.

This revised position of the Commissioner, stemming from the decision of the full bench of the Federal Court in Federal Commissioner of Taxation v Qantas Airways Limited [2014] FCAFC 168, was to apply in respect of car parking benefits provided on or after 1 April 2022.

The effect of this would be to bring into the definition of a “commercial parking station” facilities such as shopping centre car parks and hospital car parks.

For employers having only such car parking within a one-kilometre radius, the consequences were significant, potentially bringing previously non-taxable employer-provided car parking within the scope of FBT.

The consultation to be undertaken by the Federal Government is intended to identify the appropriate modifications to the definition of “commercial parking station”, with a view to restoring the previously understood interpretation (as expressed by the Commissioner in TR 96/26), which is more closely aligned with the original policy intent of the car parking FBT provisions.

The revised definition of a commercial parking station would apply to car parking fringe benefits provided from 1 April 2022, which is good news for those employers that were to be adversely impacted by the new ruling. We eagerly anticipate the outcomes of the consultation process.

Source: www.ato.gov.au/General/COVID-19/Support-for-businesses-and-employers/FBT,-COVID-19-tests-and-the-otherwise-deductible-rule/ 
https://ministers.treasury.gov.au/ministers/michael-sukkar-2019/media-releases/consultation-car-parking-fringe-benefits 
www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-benefits/Car-parking-fringe-benefits/