Accountants: There are new rules on FBT calculation method in play

New rules on the FBT calculation method puts onus back on clients to make sure valuations are correct when it comes to car parking fringe benefits. Here’s what accountants (and their clients) need to know.

The Australian Taxation Office (ATO) is warning accountants to be aware there are new rules for performing market value calculations.

From this month, the ATO may contact accountants who have engaged an arm’s-length valuer as required to undertaken the market value method.

The arm’s length valuation method is one of five ways commonly used to calculate the taxable value of a car parking fringe benefit. Other methods include the commercial parking station method, average cost method, 12-week register method and statutory formula method.

READ: Understanding Fringe Benefits Tax 101

The ATO wants accountants to know that engaging an arm’s length valuer doesn’t mean you’ve met all your car parking fringe benefit requirements or that you’ve released your client from its fringe benefits tax obligations. It’s also up to clients to confirm that the valuation is correct.

The ATO wants accountants to inform clients that it’s their responsibility alone to confirm the basis on which valuations are prepared.

“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 explains in an online update.

The change is designed to ensure that accountants help their clients understand that engaging an arm’s length valuation does not mean that they’ve met all the requirements for working out the taxable value of their car parking fringe benefits.

The update explains that it’s up to the client to confirm the basis on which valuations are prepared.

“They must examine any valuation they suspect is incorrect or which considerably reduces their liability,” it explains.

Balancing the risk: Is it time to have another chat with clients about FBT?

The change is the ATO’s way of putting the onus back on the client. But, that ultimately becomes the accountant’s issue, explained Sydney accountant Anna Kyriacou.

“If market valuations are to be used, it’s always important to validate them and to confirm that they’re reasonable,” said Kyriacou.

“The key for accountants is to balance the risk, as many in my profession fear the potential of losing a client.”

The key is to have the conversation with the client, review the impact of the changes, and understand the overall impact of the changes, she added.

Accountants working with small businesses aren’t likely to be hugely impacted by the changes according to Kyriacou.

“My understanding is that small business employers with total income less than $10 million will still have access to the parking exemption, as long as the actual car parking provided isn’t in a commercial carpark.”

She also advised accountants to consider alternative salary package options if the costs of these changes increases the employers’ overall costs.

The ATO advises that a valuation report required under the market value method must detail the following, at a minimum:

• 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 car parking spaces based on a daily rate
• The full name of the valuer and their qualifications
• The valuer’s signature
• A declaration stating the valuer is at arm’s length from the valuation

In addition to the valuation report, clients need a declaration relating to the FBT year that includes the:

• Number of car parking spaces available to be used by employees

• Number of business days

• Daily value of the car spaces