The Government has announced that the proposals to tax salary trade-off benefits such as car parks, childcare and benefits provided by charities will be narrowed.
This is in response to public concerns about the proposals’ workability.
Those concerns were raised in submissions on a Discussion Paper released earlier this year, proposing taxing salary trade-off benefits and attributing them for social assistance purposes (Working for Families, student loans and child support).
In summary, Revenue Minister Peter Dunne announced that the new rules will apply to car parks provided to employees in the Auckland and Wellington CBD areas only.
The original proposal was that all car parks would be covered if provided by an employer as part of an explicit salary sacrifice arrangement or provided as an implied benefit (i.e. the employee has an enforceable right to the car park).
Car parks will be taxable under the Fringe Benefits Tax (FBT) rules. The original proposal asked for feedback on whether taxation or attribution should be under the FBT or PAYE rules.
Charities will not be subject to the new rules. Their current FBT exemption will continue, except in the case of vouchers (such as for petrol and groceries).
The original proposal suggested that the FBT exemption be removed altogether for charitable organisations.
Cars, car parks and vouchers provided as part of explicit salary trade-off arrangements must still be counted for social assistance purposes.
The original proposal had all attributable benefits, for tax, having to also be included as “income” for social assistance.
KPMG welcomes Government narrowing the scope of the salary trade-off proposals. The original proposals cast the net too wide and did not take account of the compliance costs to employers from implementing the new rules.
However, there still remains much detail that needs elaboration.
Pragmatic approach
The updated proposals take a more pragmatic approach, the assumption being, in relation to car parks, the greatest value/benefit is in the Auckland and Wellington CBD areas and hence this should be the focus.
We assume that the Auckland and Wellington CBD areas will be based on the respective Council plans.
While not explicit, we understand that childcare and other benefits provided on employers’ premises will not be subject to FBT as originally proposed.
This makes sense given the compliance costs to employers of valuing and attributing these benefits, compared to the additional revenue to Government.
It appears that employers must use their actual cost for FBT valuation purposes, where a car park is leased from a ‘commercial car park operator’ or ‘standard values’ otherwise (e.g. if car parks are part of a building lease).
Undefined concept
The Government’s statement does not define commercial car park operator (although we understand this is intended to be specialist car park operators such as Wilson Parking, Tournament Parking or Auckland and Wellington City Council Parking operations) or indicate the likely standard value(s).
In relation to the latter, we expect this to be around $10 to $15 per day, based on typical CBD parking rates.
We also welcome concessions where the car park is used for work vehicles, disabled parking or for late night shifts.
However, the question is ‘What are the hurdles that businesses (and employees) should cross to avail themselves of the proposed exemption from the new rules?’ For example, a time-based test is likely to determine whether the park is used for work vehicles and/or night shifts.
It is possible that these will become ‘Clayton’s Exemptions’ with the evidentiary hurdle exceeding the benefit.
Additional costs
Certain benefits (cars, car parks and vouchers) must be attributed to social assistance. While we understand the equity rationale, this will impose additional costs on employers from having to attribute these benefits.
It will also put pressure on employees to get their family assistance declarations right to avoid debt at the end of the year if income is underestimated because of salary trade-off benefits.
However, in some cases this may be unavoidable.
The updated proposal for charities will (generally) come as a relief as the original proposal created a significant tax exposure for the sector with the negative financial impact potentially affecting charitable services able to be offered. The Government appears to have taken the main concerns on board.
The proposal to tax vouchers may still be the source of some debate as to whether it is appropriate to tax vouchers as if they are cash rather than the goods they represent.
Murray Sarelius is Tax Partner and Darshana Elwela is National Tax Director of KPMG based respectively in Auckland and Wellington.
