Yesterday the government’s Tax Working Group released their final report of recommendations for changing our tax system. While the media have fixated on the prospect of Capital Gains Tax, a quick skim through the report threw up something quite relevant to many of the discussions we have and is something we’ve suggested before too. Sitting under the title of Environmental and ecological outcomes and then Concessions we have:
- recommends that the Government consider allowing employers to subsidise public transport use by employees without incurring fringe benefit tax
This is expanded on a little bit further in the report.
Car parking and public transport
- The Group has also considered the treatment of car parks and public transport. At the moment, the provision of free car parking to employees is not subject to fringe benefit tax in many instances. Yet any contributions made to an employee’s public transport costs are taxed. This treatment has the perverse effect of discouraging the use of public transport.
- The Group acknowledges the practical difficulties involved in applying fringe benefit tax to employee car parks. In recognition of this constraint, the Group suggests the Government consider allowing employers to subsidise public transport use by employees without incurring fringe benefit tax.
It’s good to see the provision of free work carparking acknowledged as an issue. While there certainly will be some practical issues, there are also political as we learnt in 2013 when the former government suggested closing the loophole and quickly backed down after both business groups and unions joined forces to fight it.
So removing FBT from PT is really the least that could be done to help balance things back a bit and is something I’ve suggested before, most recently last year in response to concerns around fuel prices.
Perhaps one small thing they could do is to make it easier for employers to consider non-car based perks, such as subsidising public transport for employees.
I suspect many companies would at least be interested in the option of doing this but don’t after realising they’d not only need to pay the perk but also Fringe Benefit Tax on top of it. FBT is something they often don’t need to pay when offering carparks due to a loophole. The previous government did suggest closing the loophole but quickly backed down following opposition from both businesses and unions.
Removing FBT from PT would at least level that playing field and I suspect would have zero impact on the government because no company is currently doing it.
Taking it further, agencies like Auckland Transport could create special products to sell to businesses. This could consist of full travel passes, like monthly passes currently do, or alternatively, use the same functionality used for child/student concessions. In that situation, the employee might get discounted PT with AT billing the company for the difference. Both options could help to encourage more people to use PT which fits perfectly with goals for both Auckland and the Government.
Of course, this isn’t likely to be something that will benefit everyone. Public transport isn’t practical for a lot of people, especially those in rural areas but it’s one little thing that could help.
To me, removing FBT from public transport should be so easy and non-controversial that it should be among the first “cabs off the rank” for implementation. It also fits well with the goals in the Government Policy Statement about enabling more transport choice. In addition, I can see a lot of businesses being interested in such an idea, especially those looking to provide a point of difference in attracting staff and/or those with stated goals to improve sustainability and reduce carbon emissions.
What may draw fire is something I also mentioned at the time, that I’d go a step further and introduce a cash out law like exists in California. This would require employers who provide parking for staff to allow employees to have the value of that carpark cashed out.
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I’d even suggest going a step further. While I do see some practical problems in doing so, I would suggest that a person’s cost on using public transport should be tax deductible.
Getting to work is a cost of gaining income. It has never made any sense that it can’t be deducted.
Always felt it a bit strange that all transport and expenses for doing part of your work are tax deductible, except where that work happens mostly in the same place each day at about the same time.
Go figure.
Makes sense to be able to deduct it, but then it would also subsidise long, expensive commutes, which would further encourage sprawl.
I would prefer a tax system that taxed all profits equally and then let people make their own choices. Yet we tax revenues for salary and wage earners instead of their profit and we don’t tax the profit from rising asset prices at all. Then when a working group calls them out on that they all start bleating that they deserve to make money tax free because they didn’t work for it.
+1
“they all start bleating”
CGT being an “attack on the NZ way of life” just plumbed the depths.
If a firm only subsidised a flat amount per person the longer commutes would still be more expensive. Time wise they always would be more expensive still.
Was thinking something similar, that if you did the option of businesses subsidising PT, you could allow them to offset the cost against their tax bill or something like that.
That might encourage them to buy it for employees whether they need want to use it it not thereby giving more revenue to the likes of AT to pay for services or allowing them to offer the benefit for cheaper – making it a more attractive option for more businesses
Rather than allow employers to give employees a PT pass, why not allow an employee to “cash up” some of their wages/salary for a yearly PT pass just as they can cash up the fourth week of their annual holiday? The mechanism of a yearly transaction wouldn’t be onerous on an employer and there would be no need to make any claims against a tax bill.
If the yearly pass is tax free then it has a much greater value for the employee than taking the same amount of salary.
The experience of Vienna and other cities is that putting a yearly pass in someone’s hands is a real incentive for them to use it, all day/everyday.
If you are a self employed it is. I was a contractor for years and wrote off the cost on my Hop card against my income
It makes a lot of sense.
Employee carparks are becoming a thing of the past much to the annoyance of residents who have to put up with that situation so anything the improve that is a good thing.
My Gran rents garden space for 2 car parks to a neighbour company. Nice small boost to income. No near on road parking as yellow lined.
In Japan, private sector companies and public sector organisations can write off employee PT subsidies as business expenses – up to ¥100,000 (NZ$1,327) a month per employee. In the Tokyo-based companies I’ve worked for, the average monthly commuting cost is ¥60,000 (NZ$796) per employee and the company 100% subsidises all employee’s daily commuting costs. Auckland can and must do the same. The government should definitely remove FBT from PT and allow companies/organisations to write off all their employee’s PT commuting costs as business expenses.
I feel like there’s a clever fintech solution required as an interface between employee HOP cards and employers for prompt and accurate reimbursement
Tom, this is a good idea. The problem with only removing FBT is that this benefits only those who receive PT costs as a fringe benefit. Those who are paid in simple wages and fork out for PT with their own money, are paying a tax on their HOP card costs in the form of income tax. What you’ve suggested might be one way to ensure that the pay being spent on PT isn’t taxed, whether that pay is income or benefit in kind.
Mind you, all PT is forked out for from someone’s pay. So the children’s HOP card costs would still be being paid for from pay that has been taxed. Hmmmm….
Not if the children’s HOP card costs are being paid for by the windfall gains from selling the rental house…
🙂 But certainly if an EV “incentive” being paid from general taxation means the rent is harder to pay…
Makes a lot of sense to remove the FBT off PT. Especially since it is well known that long term passes (monthly/annual) do drive much higher rates of PT usage as there is no additional cost involved to the user to use additional services often replacing driving.
I’d support removing FBT from public transport. There’s actually an argument for not taxing commute costs at all, as the costs suppress workforce participation.
Walking and cycling are now the only ones to miss out. One option would be to allow a tax deduction for end of trip facilities, although I’m not a tax expert and accept it could be messy / impractical.
There are some great ideas here and I think I will write to Jamie Lee Ross proposing that he advance a private members bill. It will give him the chance, not only to be relevant again, but to make a valuable contribution in the transport space.
When I used CalTrain going from San Jose to San Fransico in 1997 the had adverts on the trains asking people to see/tell their companies about a system to get a tax free commuter pass to travel to work which sounds simmilar to what the tax working group are suggesting . That should have happened years ago here .
And when I started work in “73” the carpenters union negotiated for a travelling allowance as a extra to go to and from work which went towards the bus fares I was paying at the time as in those days I never had a vehicle and the firms I worked for never had transport going anywhere near I lived
Awesome a subsidy from less well connected communities with less access to PT for shift-workers to people who live in central areas with huge PT options.
What at outstanding idea.
Just levelling the playing field with the subsidizing of long term commutes by car and all the environment harming consequences that entails.
You had such a nice figure. 🙂
When I was a local board elected member I found it very odd that a HOP card was not part of the package. PT costs can be claimed as an expense but that’s so much fiddler than HOP and defeating AT’s own purpose. Often vehicles are required as elected members are required to get to all sorts of places, but it was vehicle use that was the only expected system. Biking was an oddity….
+1 to removing fbt from PT passes. Can we also allow people to spend up to $1,000 a year, pre tax on a bicycle and equipment used for commuting?
The tax exemption of Employer provided parking needs to be addressed but the curse of many effective and indeed proven interventions (congestion charging anyone) is their political unpopularity. My research of company cars and employer provided car parking from 2012 debates much of these issues but lacked cross party support hence went no where. Even the varied ACC levies on safe vs unsafe cars recommended in this report are about to be scrapped.
https://www.nzta.govt.nz/resources/research/reports/474/
In an era of populist politics where huge policy decisions (Brexit) are based on referendums, and even elections may not be as free and open as most democracies (USA, Australia) would hope, we need political leaders who will do what is best for their citizens, and as citizens we need to elect not the populist but the practical politician willing do what is best for humanity not for re-election.
Thanks for that link. Quite informative. For example, I didn’t know about Ireland had a 200 Euro parking levy in the big cities even back in 2012.
We need to move forward with as well-informed a populace as possible, so I wish there was some real education being provided. What some politicians are failing to grasp is that the urban situation is quite different – practically and even politically.