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The ATO has put business clients on alert over the use of the market value method in calculating car parking benefits for FBT.
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ATO sounds warning on FBT calculation method
22 January 2020
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The ATO has announced that from February, the agency may contact clients who have engaged an arm’s-length valuer as required under the market value method.
“In some instances, valuers have prepared reports using a daily rate that doesn’t reflect the market value. As such, the taxable value of the benefits is significantly discounted or even reduced to nil,” the ATO said in an online update.
The market value method is one of five ways an employer can calculate the taxable value of a car parking fringe benefit, and these include the commercial parking station method, the average cost method, the 12-week register method and the statutory formula method.
The ATO is calling on accountants to inform clients that it is their responsibility to confirm the basis on which valuations are prepared and to understand that engaging an arm’s-length valuer does not mean they have met all the requirements for working out the taxable value of their car parking fringe benefits.
Speaking to Accountants Daily, Tax and Super Australia tax counsel John Jeffreys said 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,” Mr Jeffreys said.
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“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.
“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.”
With the ATO having recently released draft taxation ruling 2019/D5, detailing conditions considered as providing a car parking benefit, HLB Mann Judd partner Mariana von-Lucken believes employers may begin to lean on the market value method, leading to the latest warning.
“You need to consider who is the right valuer to use because, obviously, the ATO is saying here, ‘Don’t make it up yourself’, or make sure that when you are doing it, that these are the minimum a valuation report requires,” Ms von-Lucken said.
However, Mr 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 said.
“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 website article that people should obtain a second valuation to test the first valuation. 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.”
According to the ATO, at a minimum, a valuation report required under the market value method must detail:
- the date of the valuation,
- the precise description of the location of the car parking facilities valued,
- the number of car parking spaces valued,
- the value of the car parking spaces based on a daily rate,
- the full name of the valuer and their qualifications,
- the valuer’s signature, and
- a declaration stating the valuer is at arm’s length from the valuation.
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