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FBT on car parks

In the past, the Commissioner’s view has been that car parks provided to employees under a license agreement did not qualify for the on-premises exemption and were therefore subject to FBT. However, the question of whether or not FBT applies to a car park now focuses on whether the employer has a right over the car park which is substantially exclusive. So if the employer has a right which is in fact, or effect, substantially exclusive, then the car park will not be subject to FBT.

In a nutshell, the higher the degree of control the employer has over the car park, the more likely it is that the right is substantially exclusive.

Going back a step, there is an FBT liability when an employer provides a free car park to an employee. However, there is an exemption for fringe benefits which are provided on the employer’s premises. This is sometimes referred to as the “on premises exemption”. The “premises” of an employer includes land which owned and leased by the employer.

A recent Inland Revenue ruling (BR Pub 15/11) states that when deciding on the question of FBT, employers will have to look closely at the nature of the car parking arrangement and whether it gives the employer a right to use the car park which is in fact, or effect, substantially exclusive. So a car park which is subject to a license can now be exempt from FBT if the employer has a substantially exclusive right to use it.

Factors which indicate that the employer has a right which is substantially exclusive to use a car park include:

  • the car park operator acknowledges that the employer and their employees have the exclusive use of the parking spaces and no one else can park cars on the parking spaces;
  • the parking spaces are allocated exclusively to the employer and cannot be re-allocated at the discretion of the car park operator without a variation of the arrangement or a new arrangement being agreed;
  • the employer has unrestricted access to the car park;
  • the car parking spaces remain unoccupied if not being used by the employer (or someone authorised by the employer);
  • the employer may permit others to use the employer’s car parking spaces;
  • if an unauthorised person parks in an employer’s parking space, the employer may take steps to have the unauthorised vehicle towed; and
  • the employer may decide how the car parking space is used (eg, if desired, the employer may park a trailer in the car parking space).

Essentially, you are looking at how much control the employer has over the car park.

The following are some examples of different car parking arrangements adopted from the ruling and whether FBT applies:

  • Car parks are provided by ABC Limited to its employees in a commercial car park. Under the agreement with the car park operator, ABC Limited is allocated reserved car spaces. ABC Limited has the right to request unauthorised vehicles to be removed from its reserved car spaces. Under this scenario, ABC Limited has a substantially exclusive right to use the car park spaces. Therefore, the on-premises exemption applies and FBT is not payable.
  • XYZ Limited enters into a license agreement with a commercial car park operator. Car parks are provided on an entire floor of car park which is reserved for XYZ Limited’s employees (signage is put up to ensure that no one else parks there). XYZ Limited has a substantially exclusive right to use the car park spaces. Therefore, the on-premises exemption applies and FBT is not payable.
  • Star Limited provides car parking to its managers in a nearby open-air public car park. The employees are given parking permits which are required to be displayed at all times while parked in the car park. No specific spaces are allocated or reserved for the employees. The car parks are subject to FBT as the on-premises exemption does not apply. Star Limited does not have a substantially exclusive right to use the car parks.


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