The ATO has announced that from February it is intending to contact a selection of business taxpayers that provide car parking benefits to their employees, and that use the market value method to arrive at a taxable value, to ensure these values have been calculated correctly.
Speaking to Accountants Daily, Tax & Super Australia Tax Counsel John Jeffreys says the ATO is putting the onus back on employers in considering if a valuation is a valid assessment. “In many cases, the valuation of something can be seen as somewhat of an art, rather than a science. It is frequently the case that different valuers can arrive at markedly different valuations of such things as shares, goodwill, equipment and other things such as a car parking space.”
“It is interesting to note that there are no specific anti-avoidance rules to stop unrepresentative valuations. It is assumed that ‘suitably qualified valuers’ will produce an accurate, arm’s length valuation,” he says. “Reading between the lines, it would seem that some valuers are heavily discounting the value of car parks due to a range of factors that, in their view, affects the valuation of the car parking space. Some of the factors that cause the discounting of the value may be highly debatable, at least, as far as the ATO is concerned.”
There are five ways that an employer can calculate car parking benefits (the first three of which require your client to keep records of the number of car parking fringe benefits provided):
- Commercial parking station method.
- Market value method.
- Average cost method.
- 12-week register method – once every five years, your client must keep records of the use of car parking spaces for a 12-week period, and value the use as if they had used the commercial parking station method, the market value method or the average cost method.
- Statutory formula method – 228 car parking fringe benefits are deemed to arise from the use of each car parking space during the course of the FBT year and are valued in a way similar to the commercial parking station method, the market value method or the average cost method.
The commercial parking station method must be used unless your client elects to use one of the alternative methods. Where the market value method is selected however, a suitably qualified value is required to substantiate that value.
The issue the ATO is seeking to address however, and which it hopes to resolve by, among other compliance measures, contacting relevant employer taxpayers, is where the mere appointment of an arm’s length valuer is viewed as satisfying the requirements of the law. This, says the ATO, is not necessarily the case.
The ATO’s guidance on the matter dictates that a valuation report is also required, and that this must detail:
- the date of the valuation
- the precise description of the location of the car parking facilities valued (either the street address or block and section number)
- the number of car parking spaces valued and the value of the car parking spaces based on a daily rate
- the full name of the valuer and a description of their qualifications as a valuer
- the valuer’s signature
- a declaration stating that the valuer is at arm’s length from the valuation.
Your clients must also be able to produce, when required, details of the basis on which the valuation was determined. This information may be set out in a separate valuer’s report.
However TSA Tax Counsel John Jeffreys believes the latest ATO messaging might be confusing for employers. “The legislation requires that if the employer wants to use the market value method, they must engage a ‘suitably qualified valuer’. This is because the legislation requires that the valuation be done on an arm’s-length basis,” he says.
“If, having engaged an arm’s-length valuer, the valuer comes back with a low valuation, how can an employer then conclude that the valuation methodology is incorrect, thereby implying that their valuation skills are greater than the qualified valuer? The employer is not supposed to have the qualifications to be able to determine the valuation. That is the very reason that they engaged a ‘suitably qualified valuer’.
“There is no suggestion in the ATO [announcement] that people should obtain a second valuation to test the first valuation,” Jeffreys says. “However, it would not surprise me if a low valuation was given by one valuer, that the ATO may argue the employer should have reasonably known that the valuation was too low and should have engaged a second valuer.”
Note that the market value method provides the taxable value of a single car parking fringe benefit. Your client can obtain the exact number of benefits provided only from records of actual use. For this method, the FBT law does not contain a specific rule for determining the actual number of car parking fringe benefits that may arise from each car parking space, nor for determining how many car parking spaces are in a given area.