News hit yesterday of an unlikely alliance between a business association and one of the large unions. They were teaming up together to fight a proposal by the government make employer provided carparks subject to fringe benefit tax (FBT).
Unionists and business groups have joined forces in a rare alliance to lash out at a new tax on employees who receive free carparks as part of their remuneration packages.
The government is planning to extend a fringe benefit tax (FBT) of almost 50 per cent to employer-provided parking in the Auckland and Wellington CBDs.
The newly formed FBT Action Group is protesting that the legislation, now before a select committee, is discriminatory and pointless.
It says the new proposal means businesses would pay an extra $1,500 per year for every on-site car park, and almost $2,400 for commercially supplied parks.
The group’s founding members include the Employers and Manufacturers Association (EMA) Northern, the Property Council, and parking company Tournament.
The Unite Union, headed by Matt McCarten, is also ready to throw its weight behind the campaign.
McCarten said that while the tax appeared to target the untaxed benefits of well-paid workers, it would also capture the blue-collar workers who could least afford it.
I suspect that one of the key reasons that both employers and unions are so keen to fight the proposal is that they both know just how useful carparks are when it comes time for salary/ wage negotiations. It allows businesses to provide a benefit to workers without it directly impacting their salary budgets. But by its very definition that is a benefit that an employee is receiving outside of their salary and the exact reason that we have FBT for in the first place. This group, along with Labour have also attacked the idea due to the fact it is only expected to bring in around $17m of extra tax but that ignores an important point. We currently have a loophole in our tax system that helps to create distortions in our transport policy.
The distortion comes about because an employer providing a free car park can do so without paying FBT yet if they were to pay for an PT fares of an employee, they would have to pay FBT on them. I can understand why business groups and unions object but opposing proposals like this is one of he things that should make people question Labours commitment to improving transport, particularly public transport.
If it turns out that this is just too hard politically hard to get though, perhaps an alternate idea could be proposed that removes FBT from employer provided PT passes. Along with that we should also consider similar rules as to what exists in California where employees that are provided with a free carpark are allowed to swap it for an equivalent increase in their salary/wages.
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There is no doubt that carparks is currently a loop hole in the tax net. The issue is the level of extra compliance required on business for what is an insignificant level of tax. We are only talking $17m nationally so the amount per company will be minuscule, they the administration time, and penalties for those that will inevitably get it wrong are huge.
One solution I was thinking of that would have to be tied in with the removal of minimum parking requirements, tax all carparks regardless of what they are used for. If businesses don’t want to pay the tax, they can close off or develop their carparks.
MPRs are always designed to provide a glut of capacity, even at a price point of $0. So it’s reasonable to assume there’s a market value of nothing for carparks in an area that has such minimums, meaning the question of whether the FBT is applied or not is a bit academic.
So the Tax department could load tens of millions of additional PT infastructure requirements to make councils cater for this “big tax loophole” onto big councils like Auckland and Wellington to allow the IRD to gather under $20m of additional tax?
Don’t get me wrong I’m all for a flat tax system, but theres a “mostly flat” tax system and theres a “billiard table” flat system being proposed here.
And I think the first one is far easier to achieve than the second one – with less compliance costs all round.
I agree it is a stupid move, but for compliance costs reasons
For exactly the same outcome, they could just say that carparks provided to employees (as opposed to customers) are a private expense, not a business expense and therefore not tax deductible. Simple adjustment once a year rather than attributing to the employee 4 times a year. Not as ‘clean’ from a policy perspective but more manageable.
I am not sure how this change will increase PT requirements. Exactly the same number of carparks will exist. If demand drops (ie. moves to PT), then the price will drop to equilibrium is restored.
It does make you wonder, that if this comes to pass and every employer then told their employees, no more carparks for you as its too hard to manage.
Would the current “pay” parking system cope with thousands of extra car drivers wanting to use them?
Would the current PT system cope with tens of thousands of extra peak time PT users?
Doing this would of course remove some cars from the road as users switch to PT.
– but many of those car drivers are not necessarily Peak Time drivers now – quite a few would be shoulder-peak drivers (pre-peak or post-peak), as they know they will have a park when they arrive so they can stagger their arrivals accordingly. If they no longer have that guarantee of a car park when they arrive then many will be forced to either drive during peak to get one of the (now scarce) pay car parks around the CBD. Or, they will have to use PT – again at Peak most likely.
Both will exacerbate the current creaking PT system in Auckland, and probably Wellington too. Which is as per Rudmans comment yesterday is borderline at best currently.
So yes,its all great having a wonderfully broad tax system that treats all tax payers equally and thus ensures that if you receive a benefit you (or the employer) is taxed for it like other fringe benefits are. But there are, as in all things with this proposal fish hooks, and unintended consequences, borderline cases and the like.
So I think a less broad brushed approach with a more nuanced approach is needed, but thats not the IRD modus operandi in most cases.
Tax bureaucrats like simple policies that are black and white but I’m afraid there are a lot of grey areas in this one right now.
In the scenario you describe, employers who had carparks they now weren’t using would generally convert them into paid parking, expanding the number of paid parks by the same number of employee parks that had just been lost.
Which is in effect turning each business into a mini-Tournament parking operation.
Not exactly Core business for most, and most would probably realise, the cost of administering in time and trouble is not worth it, so that would go by the wayside.
Not a core business but that doesn’t mean it can’t work. I was talking to someone recently who’s organisation had built some paid parking despite their core business being something completely different and they found it worked better than expected while also freeing up land for them to do more with.
Plenty of businesses do this already, and surprise surprise, they usually outsource the whole operation to Wilson or Tournament.
e.g. http://www.tournament.co.nz/business-parking/new-zealand-carpark-management-services/
with the unintended consequence of driving up demand for street parking
Why would it do that?
because they’re free and if the employer charged employees would park for free and if the employer removed the parks they’d have to park on the road, it’s not complicated is it?
The tax only applies to the Wellington and Auckland CBDs, where on-street parking is very, very much not free. In Auckland it’s $42 or $56 for 8 hours in most of the CBD – Wellington is $4 / hour with a 2 hour maximum: $32 for the day and you have to move the car three times. This is way more than the cost of off-street parking at the moment. As I pointed out, most employee parking that is lost will be converted into paid parking, so it’s unlikely off-street parking prices would rise to anywhere near the cost of on-street parking.
my apologies, my eyes skipped over the “CBD” qualification
One reason we try to have a comprehensive fringe benefit tax is to reduce complexity and employer control over employees’ lives. By far the best way to be paid is in money, which you can use to spend on anything you choose, including carparking if that’s what you actually want. Even if it costs more than $17 million to collect the $17 million in revenue, there’s a public benefit in encouraging employers to pay people in money, rather than perks.
FBT was created to stop people from avoiding PAYE. PAYE only applies to money, not benefits.
FBT has done a good job in getting rid of a lot of perks as you suggest – many companies doen give perks so they dont havbe to pay FBT. Carparks are harder to avoid supplying, especially if they come packaged up in your lease.
Still, companies have the option of using those parks for visitors, or as paid parking (including leasing them to employees), and since the FBT on carparks only applies in the Wellington and Auckland CBDs, it is possible to get a lease that doesn’t include carparks.
Hmm, what would stop a couple of businesses next door to each other setting up a scheme whereby Company A’s employees park in Company B’s carparks “for free”.
And v.v. on q quid pro quo basis?
Wouldn’t that allow each company to rightfully claim they don’t provide employee carparks and only have “visitor” carparks, yet these are always full of next doors cars?
How would the tax man treat that for FBT – zero rated?
Equally, what’s to stop them just saying they are customer car parks and not enforcing them, hence why I suggested above that perhaps it should just be a tax on car parks in general regardless of who uses them.
If I were a lawyer, I’d recommend not relying on advice about potential tax avoidance schemes from commenters on Internet blogs. Since I’m not a lawyer, I’ll just say “Who knows? Maybe.”
Tax avoidance rules and 100% penalties.
Tax evasion rules, 200% penalties and a criminal conviction.
“FBT has done a good job in getting rid of a lot of perks as you suggest”
I knew a guy who’d immigrated here from the UK where he ran a small business. He said the straw that broke the camel’s back and caused him to leave the UK was fringe benefit tax. He said that there were times the business (an HR recruitment consultancy) was really busy and people worked through their lunch hour. When that happened, he popped out and bought everyone sandwiches. The tax people heard of this and wanted to charge him FBT.
There are times where tax policy and enforcement achieves almost nothing but looks mean. For $17million a year, this is one of those times. I expect Key will be telling Dunne that it isn’t worth picking a fight with a lot of people in order to raise almost nothing.
I’m certainly no fan of most the actions of this government but I have to say that if they’ve managed to piss of both sides of the employer/employee divide I suspect that means that they’ve got something right here. Is it the most efficient solution to this distortion? I don’t know, but courtesy of our resident Californian Kent, here is the solution there alluded to by Matt above:
“State law requires certain employers who provide subsidized parking for their employees to offer a cash allowance in lieu of a parking space. This law is called the parking cash-out program.”
Working in London years ago I was given an all zones annual pass for the Tube and Buses which was a fantastic addition to my salary. I have no idea what the tax status of that was for my employer though…?
You did better than me. I was offered an interest free loan for an annual tube pass, effectively spreading the upfront payment into my monthly salary.
This would have been in the same period, when employees would route sign off their pay checks with Donald Duck, Peter Pan, or Mickey Mouse to avoid the Tax man knowing who was actually being paid? I suspect there was no Tax payable on said annual Tube pass when you were then.
I certainly went to bits of London with that pass i never would have otherwise…. Zone 8!
You could have seen the New Zealand architect Amyas Connell’s spectacular ‘High and Over’ and all the Sun houses in Amersham on an all zones pass!
Well I wish i had thought of that, I certainly did see Lubetkin’s Highpoint and the Goldfinger house… much closer in though.
I used to live near Amersham and am familiar with those buildings but I got to see Frank Lloyd Wright’s Falling water by missing a train. Business trip to Chicago booked on the Amtrak Capitol Limited. Colleagues caught it in the DC area and I drove up to Harpers Ferry. Missed the train by minutes and went off in hot pursuit through rural West Virginia. Caught it in Connellsville PA where I left the car. On the return journey it was a short detour to Ohiopyle State Park and Falling Water. I was so impressed with the house and the surrounding area that the whole family vacationed there the following summer – cycling the route of the old Western Maryland Railroad.
I used to love travelling by Amtrak especially on the double deck Superliners.
Nice. Good story.
This is a rare one that will put the Greens and National on the same side of an argument.
Let’s have more such policies that create unlikely alliances of support and opposition!
Sadly, it seems more likely that the “unholy alliance” of tax groups, business groups, unions and Labour – as one wit called it – will make this into enough of a stinker for National to eventually can it with a “meh, too cumbersome in practice” excuse.
I somehow suspect that Labour’s opposition to this proposal stems from:
a) It is National that proposed it
b) Opposing it is a safe populist response
c) Labour simply hasn’t a clue about transport issues. Utterly lacking in knowledge, insight and vision (with the exception of Phil Twyford who has not-so-cleverly been moved out where he could do some good).
I don’t want to believe what I have written here, but nothing I have heard from Labour in recent times encourages me to believe otherwise.
A rare moment for me when I actually like something National is suggesting to do. Makes a pleasant change.
I think Labour is oppposing it just because its a National idea and as Dave says above, they dont really have any ideas when it comes to transport. They just seem to steal ideas from the Greens.
Why is everyone claiming this will have huge compliance costs? Employees, car parks and their allocations are tightly controlled in the CBD so working out what to pay will be a simple spread sheet calculation. We’re not talking random, variable or even subjective measures. Certainly a lot simpler than other FBT rules.
If we’re looking for real examples of complexity, try persuading an employer to swap the car park they give you for a public transport pass or even half the cash value. That’s impossible, and the reason a law change is needed to remove the current distortion.
I’m not a tax expert, but here’s my reading of the tea leaves.
In general, I see two broad types of taxes: Revenue taxes and incentive taxes. Revenue taxes aim to raise money (e.g. income tax), whereas incentive taxes encourage people to use less of something bad (e.g. taxes on alcohol). I feel that FBT falls fairly and squarely into the second category, i.e. it’s a incentive tax. More specifically, the primary purpose of FBT is to prevent leakage from income tax to non-cash perks. In that sense it’s quite unusual because it provides an incentive that in turn protects revenue taxes.
My hunch is that when FBT was initially brought in the compliance costs were quite high: Because many employers were, at the time, providing employees with perks to reduce their income tax committments. Over time, however, the high FBT rate (I think it’s 40%) and high compliance costs have stopped that from happening. Which is a good thing – the incentive has worked and perks have disappeared – along with compliance costs of course!
In the case of car-parks, we know that employers (and unions) are currently using them to get around income tax, so applying FBT to car-parks would seem to be in the spirit of the incentive tax. Perhaps more importantly, while it will create compliance costs in the beginning, it seems reasonable to suspect that these will reduce over time as people respond to the FBT and stop structuring their affairs to avoid tax. The added “kicker” is that by applying FBT to car-parks we not only protect our income tax base, as intended, but we also benefit from less people driving and less congestion. But that’s a bonus – not the primary driver of applying FBT to car-parks.
As an aside, I think the unions have only themselves to blame for being in this situation. From what I hear many of their “collective employment agreements” include a requirement for every employee to get a free car-park. This was often nothing to do with the demands of the job and more to do with “getting one over management”, i.e. stopping companies from giving car-parks to executive staff but not to normal employees. As for Labour, they are adrift when it comes to transport. And it this situation it’s just too easy for them to follow the unions …
And as an aside, good on Peter Dunne and the National Government for following this through. Level transport playing field here we come … if only they would do something about minimum parking requirements?
Stu all I can see out of this is endless arguments over where the Wellington and Auckland CBD’s start and finish “for tax purposes”.
Where would you draw the line – inside the auckland Motorway moat? then watch the special pleading for why so and so should be excluded from this.
As this is not a Auckland wide proposal, only a Auckland and Wellington CBD proposal is distortionary in the extreme.
This smells of a regional fuel tax – something the government has sworn against, yet here they are bringing something similar in here via the back door.
Got a suggestion, why doesn’t central government levy a car park tax on every CBD premise, collecting it via the Auckland Council? Seems easier to do this as its “flat tax” type scenario.
Everyone with a car park (everyone – Tournament/Wilsons/bullding owners etc) pays. Then those employers who are sick of the car park hassles can trade the tax liability to the Auckland Council in return for AT giving the employees annual PT passes for all modes for all zones. I’m sure they’re worth more than the car parks forgone.
Is it a perk for the employee? Maybe not if AT hands them out and the employer has no involvement.
A win/win/win for the employer and the employees and the council.
Get up the IRD and Governments nose? surely will.
I don’t know what the IRD are planning to do, but both Auckland and Wellington have very well-defined CBDs in their district plans. The definitions are used for a lot of purposes, not least being the areas where there’s no parking minimums.
Correct (at least for Auckland). The draft legislation defines the CBD as set out in the Auckland Council district plan.
Outside of the CBD, only expensive carparks will be caught so possibly some in Newmarket, and potentially the most premium carparks in Hamilton, Tauranga, Christchurch and Dunedin.
Have you got a link to the Bill? I can’t seem to find it.
Ah, found it:
http://www.legislation.govt.nz/sop/government/2012/0167/latest/whole.html
I think this is it: http://www.aucklandcity.govt.nz/council/documents/central/maps/cbdmap01.asp
No one’s mentioned above that this tax could potentially shift development out of the city CBDs, i.e. because parking is taxed in the CBD, developers are more likely to build new office space outside the CBD. That’s a key part of the “discriminatory” argument against the change.
Plus the compliance costs are essentially only falling on CBD businesses, making businesses less likely to want to locate there.
Then again, if it means that buildings keep getting built in the CBD but with a closer look at how much parking they provide, I’m all for it.
Good piece on this issue from Brian Rudman today
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10870834
Its the level playing field that is missing here. The “cash-out” proposal sounds like a low-maintenance compliance solution to me.
if you get a car park, while somebody else has to pay all his PT costs (or even more clearly, while somebody else has to pay for paid parking because he doesn’t get a free), how is that now a significant benefit? Even in, say, and area where the daily cost of parking is only (for argument’s sake) 5 dollars, that is 100 dollars a month, or 1200 dollars of extra wages a year.
I think there’s a serious risk that the Government will back down and it won’t go through. All it takes is Kim Campbell showing up at select committee with a bunch of spurious claims and emotive appealing to the Nat backbenchers. I’ve tried to rally support. I really think Labour’s attack’s are typical political opportunism and a good example of why no one should trust them to implement the right thing in Govt.
http://www.stuff.co.nz/national/politics/opinion/8423120/Car-park-tax-looking-for-rubbish-bin-of-history
In regards to the Labour parties opposition to this. I know a lot of Labour party members, and I can tell you that their responses and the MPs shrill reaction to this points to the lack of thinking about PT going on within the party.This worries me deeply.