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Special Tax Alert

New tax rules for employer provided car parks and lease inducement and surrender payments


Tax AlertDraft legislation released

On 11 December 2012 the Minister of Revenue, Peter Dunne, released a supplementary order paper (SOP) to the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. The SOP includes important changes to the tax treatment of employer-provided car parks, and lease inducement and lease surrender payments.  The SOP also contains a range of other measures, including dealing with a base maintenance issue associated with electing short-term arrangements for sale and purchase into the financial arrangement rules.

The submission date on these proposals is 7 February 2013.  The looming Christmas break means this time will come around quickly.  It will be important for businesses to consider how these rules will impact their tax position and whether there are any anomalies or issues of unfairness that need to be fixed before the legislation is finalised and comes into force.   The relevant rules will apply from 1 April 2014 for the car park proposals and from 1 April 2013 in the case of lease inducement and surrender payments.  


FBT on employer provided car parks


In April of this year Officials released an issues paper seeking views on a range of “salary trade-off” proposals seeking to broaden the tax rules relating to non-cash benefits received by employees as a substitute for salary or wages.  The issues paper also considered options to ensure that fringe benefits were factored into employees’ “income” for social assistance entitlement purposes.   The original proposals, if implemented, would have been far reaching and a large compliance headache for employers.

As a result of feedback received, what has now been included in the SOP is a scaled back version of what was originally proposed.  Effectively the FBT rules have been widened to capture employer provided car parks in the Auckland and Wellington central business districts (CBDs) with limited exceptions. The rules will also apply outside those areas in certain circumstances.  The new rules will remove the distinction between parking benefits provided on the employer’s premises (which are currently exempt from FBT) and parking benefits provided off premises (which are not exempt from FBT).  


The table below summarises the proposals.  

Deloitte comment

Employers based in the Auckland and Wellington CBDs are predominantly targeted under the proposed FBT rules.  They will face a hefty new tax bill from 2014 if they currently own or lease their employee car parks.  As noted, there is some complexity to the rules, so rather than try to explain every facet of the rules, the table below explains the FBT outcomes under a range of common scenarios.  

One area which is likely to cause controversy is the decision to tax car parks which are provided for employer-owned vehicles which are used for work purposes during the day, but which don’t comply with strict rules for the vehicles to be excluded from FBT (as “work related vehicles”).  A common example would be a mobile mortgage manager.  In these scenarios, car parks are merely being provided to facilitate an employee undertaking their employment effectively and efficiently.

It is also proposed to add the provision of a parking space to the list of attributable FBT items and so those employers will need to include car parks specifically allocated to employees in the attribution calculation. Complex rules exist to allocate employees a proportionate share of a car park when there are more employees than car parks.  This rule provides employers with the option of being able to pay FBT at marginal FBT rates.  

As an alternative, if all employees able to use car parks have a similar level of entitlement to use the parks it will be possible to treat the car parks as a “pooled” benefit, subject to FBT at the flat rate of 42.86%.

There is an attempt to mitigate compliance costs by including “parking test period” rules whereby employers can keep records of parking spaces used for a test period in order to obtain daily average figures which can then be applied for a term of up to three years.

There are also some additional rules for employees of charities around the provision of vouchers and short-term charge-facilities.

The SOP also includes related changes for employees receiving social assistance.  Those employees who currently “trade-off” an amount of income to receive a vehicle or car park will need to include these amounts as additional income for the purposes of determining “family scheme income” in their tax returns.  Employees of charities will also need to include the value of short-term charge-facilities.  The consequence of this is that Working For Families entitlements may reduce.  Similarly there may be consequential effects for child support payments and student loan repayments and other social assistance entitlements.

There are still some rough edges to the rules which will hopefully be able to be sorted out before legislation is enacted, although one thing is for sure, employer compliance costs will be going up. Interestingly, the Regulatory Impact Statement notes the change is only expected to gather an extra $17m of FBT each year and is expected to save the Government only $5m in social assistance entitlements.

Type of car park  

Type of car park 

Proposed treatment

Proposed fringe benefit value (if applicable)

1. Car parks not provided “on premises” (e.g. licensed car parks, casual car parks)

Some car parks may no longer be subject to FBT depending on where the car park is located and who uses it – see details below.


Refer to scenarios below.

2. Car parks provided “on premises” (e.g. car parks on owned land, leased car parks)

The current FBT exemption is to be removed and the car park will become subject to FBT depending on where the car park is located and who uses it – see details below.


Refer to scenarios below.

3. Car park provided in Auckland or Wellington CBDs (as defined in council district plans)

All Auckland and Wellington CBD car parks will prima facie become subject to FBT.  Some limited exclusions apply for disabled parks, late night shift workers and parks provided for work related vehicles.

Value will be set based on:

  • Price charged by commercial car park operator (if applicable); or
  • An amount set by the Inland Revenue (expected to be $250 per car park per month); or
  • The after-tax amount an employee has traded off in order to receive the car park (if the above two options don’t apply).

    The value may vary on a per-employee basis if there are more employees with access to car parks than there are car parks.

    For example:
  • An employer leases a building in the Wellington CBD, the lease includes 10 basement car parks.  Regardless of whether the lease specifies a value for the car parks, the FBT value will be the amount set by Inland Revenue.


4. Car park provided outside Auckland or Wellington CBDs

A car park will only be subject to FBT if:

  • It is provided by a commercial car parking operator and costs $210 (including GST) or more per month; or
  • It is the subject of an explicit salary trade-off.

For example:

  • A car park provided by a commercial car park operator in Parnell (outside the Auckland CBD) will only be subject to FBT if it costs the employer $210 (including GST) or more per month.


Value will be set based on:

  • Price charged by commercial car park operator (if applicable); or
  • The after-tax amount an employee has traded off in order to receive the car park (if the above option doesn’t apply)

The value may vary on a per-employee basis if there are more employees with access to car parks than there are car parks.

For example:

  • A Dunedin employee has an employment agreement which specifies that his after-tax income will increase by $500pa if he chooses not to receive a car park.  FBT is payable on the $500 value if the employee elects to receive a car park.


5. Car parks provided for parking a work related vehicle (WRV)


Car parks provided for WRVs will be exempt from FBT.


6. Car parks provided for parking employer owned / leased vehicles that are not work related vehicles


If the WRV definition is not met, an exemption is only provided if the vehicle is a pooled motor vehicle which is not taken home by an employee.

See 3 & 4 above.

7. Car parks provided to employees who are required to use their own vehicles for business use

It may be possible to exempt these car parks if the provision of a car park removes the need to pay the employee an allowance to reimburse for parking costs.  This is an existing FBT rule.



8. Car parks made available to late night shift workers

In recognition that public car parking is a lot less expensive outside of standard business hours, FBT will not be applicable to an employee if the employee either starts or ends their shift outside the hours of 10pm or 6am.



9. Pooled car parks

FBT will be payable on the availability of pooled car parks if they fall under scenarios 3 or 4 above.  The fringe benefit is one parking space if there are more car parks than employees and a fraction of a car park if there are more employees than car parks. 


FBT is to be calculated on a per-employee basis (for FBT attribution purposes), but the net result is that FBT should equate to what would be calculated on a per-car park basis.  If all the relevant employees have the same entitlement to the car parks it will be possible to treat the parks as a pooled fringe benefit rather than attributing them.

10. Customer car parks

FBT will be payable on car parks “made available” to employees.  On this basis, provided that employees are not permitted to park in customer car parks or loading zones etc. no FBT should be payable.



11. Car parks provided to employees but not used

FBT is payable on the basis of the availability of the car park, whether the employee uses the car park is irrelevant.


See 3 & 4 above.

12. Parking provided to motorcycles

FBT will be payable on the availability of a parking space for a motor vehicle if they fall under scenarios 3 or 4 above.   The fact that motorcycle spaces may be smaller or otherwise unusable space is not taken into account.  A motorcycle meets the definition of motor vehicle for the purposes of these rules.

See 3 & 4 above.

Lease inducement and lease surrender payments

It is proposed to change the tax treatment of two specific land-related payments, namely lease inducement payments and lease surrender payments.


A lease inducement payment is made by landlords to induce tenants to enter into a commercial lease. Typically these payments are non-taxable to the recipient and deductible to the commercial landlord.  The government viewed this tax asymmetry as undesirable. The discussion document released in July proposed that these payments would be taxable to the recipient as a base maintenance measure.    

Accused of cherry picking only the issues that bring in more revenue, the government to its credit, agreed to align the treatment of tax surrender payments which was also not symmetrical.  A lease surrender payment involves a tenant making a payment to the landlord to surrender an existing lease arrangement.  These payments are typically taxable to the commercial landlord recipient but not deductible to the tenant, and end up being black hole expenditure.

Lease inducement payments

Lease inducement payments derived on or after 1 April 2013 as consideration for the agreement by the payee to the grant, renewal, extension or transfer of a land right that is a leasehold estate or licence to use land will be income to the payee (i.e. tenant).

Lease inducement payments paid by a landlord are confirmed as being deductible if incurred on or after 1 April 2013 as consideration for the agreement by another person to the grant, renewal, extension or transfer of a land right that is a leasehold estate or licence to use land.  

In both cases a timing rule will operate to spread the receipt or payment evenly over the term of the land right.  

If a person ceases to hold a land right part-way through a spreading period, there will be a “wash-up” calculation to deal with any remaining income or deduction to be spread.  Generally the remaining amount will be allocated to the income year in which the right ceases to be held.

Lease surrender payments

Lease surrender payments derived on or after 1 April 2013 as consideration for the agreement to surrender a leasehold estate, or termination of a licence to use land, will be income for the landlord. While expenditure incurred by a payer (tenant) on or after 1 April 2013 as consideration for the payee (landlord) to surrender a leasehold estate or terminate a licence will now be deductible.

No specific timing provision is provided for lease surrender payments but generally this will be in the income year in which the amounts are derived or incurred

Deloitte comment

The rules will only apply commercial lease agreements and so payments in relation to residential premises are excluded.

The draft legislation refers to the derivation and incurrence tax concepts as the trigger points for when the rules apply.  Broadly this means it will be necessary to determine at what point the recipient is said to be “entitled to the income” (i.e. derived an amount) and the payer have a definitive liability to make payment (i.e. incurred an amount).  This may depend on the particular legal agreements and facts, which may be different in each case.    It is a point that may require further clarification.  This will be particularly important to bear in mind in the period leading up to the new rules applying where, for example, agreements to lease may be entered into prior to 1 April 2013 but the actual lease may not commence until after 1 April 2013 and the inducement payment may not actually be paid until after 1 April 2013.  The question to be determined will be whether the tenant has derived the inducement payment before 1 April 2013 or after 1 April 2013.

The other point to note is that this may not be the end of the matter.  There will be a further review of other commercial land-related lease payments, such as lease assignments.  The idea is to achieve a coherent and consistent tax treatment of these types of payments.  An officials' issues paper will be released early next year seeking feedback on the treatment of other lease related payments.

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