ATO Mulls Fringe Benefits Ruling

by Mary Swire, Tax-News.com, Hong Kong

21 March 2011

The Australian Commissioner of Taxation is inviting comments on a decision made following a court case at the end of last year between the Commissioner and Virgin Blue Airlines, based on whether car parking facilities provided to employees at Melbourne Airport were subject to fringe benefits tax (FBT) because they were at, or in the vicinity of the primary place of employment of those employees.

The Full Federal Court held that, while the expression "in the vicinity of" is capable of wide application, its meaning must be considered in the statutory context before application to the facts. The statutory context concerns the imposition of tax upon car parking benefits provided to employees who use their cars to commute to and from work. It said that the criteria for imposition of the tax (including the vicinity requirement) operates as a carve-out from the general FBT exemption for car parking benefits provided by employers to employees.

The Court considered that the application of this meaning of 'vicinity' is ultimately a matter of evaluative judgment, and held that a car park which is approximately two kilometres away from the primary place of employment is not near, proximate or close to that place.

The Tax Office’s view was that the decision clarified the meaning of the phrase "in the vicinity of" in paragraph 39A (1) (f) of the Fringe Benefits Tax Assessment Act 1986. It commented that in its statutory context, the expression refers to places which are near, meaning in close spatial proximity, to each other, and it was open to the Court to conclude that a distance of approximately two kilometres is too far for a car park to be considered in the vicinity of the primary place of employment in terms of paragraph 39A(1)(f).

The Tax Office said that the decision also confirms that the application of the vicinity test requires evaluative judgment as the legislation does not specify an absolute measure of distance between a car park and the place of employment as the relevant criterion for liability.

The Australian Tax Office is accepting comments on the ruling until May 4, 2011.

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