Transcript - Episode 3: Parking as a taxable benefit

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Host: Hello and welcome to the Canada Revenue Agency’s payroll podcast. On today’s show, we continue our series on taxable benefits by taking an in-depth look at parking benefits. I`ll be talking to our subject matter expert, Kira Turner, about the key concepts employers need to understand, including situations where parking is required for business reasons, the fair market value of a parking spot, and the definition of scramble parking. Generally speaking, employer-provided parking is a taxable benefit. I asked Kira if there are any exceptions to this rule.

Kira: Legislatively, there’s the exception that if parking is provided for reason of disability, then it can be excluded from income. From a policy perspective, we also allow that if parking is provided for business reasons, it’s excluded from income. And also, if it is scramble parking that is provided, although we maintain that this is a benefit, we don’t require that it be included in income and similarly in a situation where parking is provided for free to both employees and the public in a place like a shopping mall, then we would not require that the employer include the benefit in income, although again we do believe that there is a benefit there.

Host: One of the exceptions you touched on is in cases where parking is provided for business reasons. Can we define that, or how does CRA interpret what would be included within business reasons?

Kira:  Well business reasons means that the employee is required to have access to a vehicle in order to perform their duties of employment on a regular basis. And by regular, we mean three or more days in a standard five-day work week. Not three or more times, three or more days. So using it three times in one day does not meet the business use criteria, whereas three times in a week, like three separate days in a week, that would meet the regular business use criteria. And this is week-in, week-out that the employee would need this. It’s not just once a year, there’s one week where they need a vehicle on three different days and therefore they get free parking for the year, it doesn’t work that way. Really, look at job function. There are certain job functions where employees are required to be mobile and move around and drive in order to do their duties and that exclusion is meant to recognize that.

Host: Ok so three out of five days would constitute regular use. Would that include very
light use during those days, maybe just driving to a meeting and then driving back?

Kira: Yes

Host: It doesn’t have to be extended use?

Kira: No.

Host: As long as it’s used at all, that would count toward the three to five days?

Kira: And the employer requires that they use a vehicle to do that, meaning that it’s not the employee’s choice. Some businesses may, for example, have multiple locations throughout a city, and if managers have to attend meetings in other buildings, some employers might provide taxi chits or have some sort of shuttle service. In that case, it’s not required that the employee use a vehicle. It’s that the employee is required to use a vehicle to perform their duties of employment.

Host: Ok that makes sense. Another important topic I wanted to ask you about is the concept of fair market value in relation to parking benefits. How can an employer determine the fair market value of a parking spot?

Kira: The best way is to look at the area in which your business operates. Is there commercial parking in the area? Is there metered parking in the area? Are there parking lots nearby where people pay a daily or a monthly rate to park their cars there?

Host: That’s one thing I wanted to expand a little bit on is the difference between a daily rate and a monthly rate. We’ve talked about fair market value as being the highest price that can be obtained in an open market. Often, the daily rate for parking will be higher than what a monthly rate would be. How does that get factored into it? I would assume we’re just expecting people to go with the monthly rate if that’s what’s being provided, is that correct?

Kira: We are. It’s the highest price that can be obtained in an open market that’s reflective of the actual use. If an employee is working in a downtown core type location, we wouldn’t necessarily look at the absolute maximum they could possibly be charged based on the idea that they pay $20 a day, the daily maximum rate at a commercial parking lot because the same commercial parking lot may well offer a $225 a month fee for regular parkers so to speak. So, we would look at, fair market value is the highest price that can be obtained in an open market for that good or service. In this situation that service is monthly parking.

Host: Ok. What should an employer do if there are no comparable spots in the surrounding area and how far away can a comparable spot be?

Kira: Well first, let me ask you a question. You probably didn’t think I was going to turn the tables on you like this.

Host: I did not expect that.

Kira: When would there be no comparable spots?

Host: You’re in a remote location, let’s say.

Kira: So this means that really there isn’t a market for parking. Nobody in the area, there is no paid parking in the area. So that fair market value is the highest price that can be obtained between two parties dealing at arm’s length in an open market. So if in an open market, the highest price that can be obtained for parking is zero, then that’s the fair market value. The employer would need to keep records to demonstrate that the fair market value legitimately is zero. If you try to make the argument that in an urban downtown core location, the fair market value is zero, you’re not likely to be terribly successful with that. But there are very legitimate areas in cities and certainly rural or suburban areas where there is no market, the fair market value for parking is legitimately zero. And as for how far you would look, what area you would look, well what’s a reasonable length of distance that you would expect an employee to walk from parking that they found themselves? So it doesn’t matter if five kilometres away, you know, the parking lot next door, the commercial parking lot next door charges $300 a month but one four kilometres away charges $25 a month. You would have to look at the one next door, because no employee is going to drive to a parking lot four kilometres away from the office and then walk four kilometres. That’s just not reasonable. So you would want to look within a reasonable distance for the employee to walk from that parking situation to the office.

Host: Ok. And how is the value of a parking benefit affected if the actual spot isn’t being used? Let’s says the employee is away on vacation or away on sick leave. That spot is vacant. How does that affect the value of the parking benefit?

Kira: The parking is still available for the employee’s use. Occasional days for vacation, I mean, it would be different if it’s an extended leave, like for example, an employee goes on parental leave for eight months. We wouldn’t necessarily expect a benefit to be included when they were on leave for eight months, but a day here, a day there, a week here, a week there; it’s still available for their use. I would also argue that in some situations, having access to downtown parking, whether you’re working or not, on your vacation, it can be useful if you could nip downtown to do shopping or a cultural event and just park at the work office, at the office lot, and not pay $25 daily rate at the local museum that you want to visit.

Host: Ok. I guess in certain circumstances an employee could always speak to their employer as well. If it’s a case where, in cases of extended leave, they could speak to the employer and say, look I’m not going to be using this spot, I’m going to be away in Europe or something like that. In a circumstance like that, could the employer and employee have a conversation and between themselves decide that there is no benefit for that period?

Kira: Again it depends on whether the employee still has the right to use the spot and access to it. Much like automobile benefits, as we spoke about in a previous episode, it’s available for the employee’s use. So say the particular employee isn’t going to use it, but their spouse works in the building across the street, but doesn’t have parking. Is the employee’s spouse going to take the pass and park in the employee’s spot?

Host: Ok, so it might still get used, even though the employee is away for six months, they can just give the pass to a friend or family member. The key thing there to point out is that the spot is available for use.

Kira: Yes and the employee still retains ownership of it in a sense that when they return from their leave, that hasn’t been, you know, their access to parking, some buildings, for example the building that we’re in right now, there are more people who want parking then there are parking spots available, so there’s a waiting list. You may have a situation where an employee goes and works in another building for six or eight months and then returns to this building. Very often they don’t give up that parking spot. They continue to pay. In our building we don’t have taxable benefits because of course employees are charged fair market value to park here so they pay themselves out of pocket rather than receiving free parking. Even though they work in another building, they continue to pay for parking because when they come back they want access to that spot. They don’t want to have to go to the bottom of the waiting list. So as long as the employee retains the right to park, there’s a benefit.

Host: Another factor I was thinking may affect the value of the benefit is in cases where employees are carpooling. Let’s say two or three employees take the same car, only one individual actually owns that car that’s going into that spot. Would the value of the benefit ever be spread out to those employees that are carpooling?

Kira: The CRA’s view is that if employees choose to do this, that’s a matter between employees. The person parking is the person receiving the benefit. If that person charges the people they carpool with for gas or mileage or whatever, that’s a matter between them. The fact of the matter is, one person is parking and one person has a benefit.

Host: After the break, I`ll ask Kira about one of the most misunderstood concepts when it comes to parking benefits, scramble parking. Stay with us.

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Host: One situation where a parking benefit does not need to be included in an employee`s income is in cases of scramble parking. I asked Kira to elaborate on this topic to help us understand what does and what does not constitute scramble parking.

Kira:  Our position is still that it’s a benefit and it still is taxable, but we see in a true scramble parking situation that the administrative burden of tracking it is so significant that we don’t require employers include it in income.

Host: Ok, just because it’s so difficult to calculate.

Kira: Yes. So what scramble parking is, is where there are significantly fewer spaces then there are employees wanting to park on any given day and the parking is available on a first-come, first-serve basis. So, unlike I mentioned the building we’re in currently, there’s more people who want a parking spot then there are parking spots available, but the people who don’t have a parking pass aren’t allowed to park here. They’ll get ticketed and towed if they do. So that’s not scramble parking simply because there’s a waiting list to get into the lot. People have surety. They know if they’re going to have a spot because they have a parking pass or they know that they don’t and they’re going to have to find parking elsewhere. So scramble parking is where it’s a free-for-all. Some days you might find parking, some days you might not. So it’s random and uncertain.

Host: Ok, so that plays into the idea that it`s impossible to expect an employer to keep track of all that because on a daily basis things change.

Kira: You may have gotten parking one day this week, no days last week, and every day next week. So on a day-to-day basis, every single employee would have to log with you whether they parked or they didn`t.

Host: Ok, and how is that situation affected by fluctuations in staff. I`m just thinking of my past experiences. I’ve worked in buildings where certain times during the year, scramble parking would exist. There’s too many employees for the amount of spots that are available, but then at other times during the year, maybe staff is laid off and all of a sudden there are fewer employees than spots available. How does that factor into this situation?

Kira: Well it’s on a day-to-day basis. Occasional instances, even if they happen on a semi-regular basis, that create a situation where not everybody can find a spot do not create a scramble parking situation. Similarly, you may have a situation where, say, in a factory-type situation or a hospital where they operate 24 hours a day. So if every single employee showed up at the same time, there wouldn’t be enough parking, but since you have three or four shifts running, during any given shift there is ample parking. So in that situation, even though you may have 300 parking spots but 800 employees, the fact is only 200 employees work at any time. Within scramble parking, again, it’s the employees wanting a parking spot, not the number of employees in total. So if you have 150 parking spots, 200 employees, but 75 employees take public transit, then you don’t have scramble parking because every employee can find their parking, can find a parking spot every day. And also, I like to illustrate the difference between assigned parking or unassigned parking rather, and scramble parking are not the same thing. Assigned parking is where employee A is assigned parking spot A and that is where they park every single day. They’re the only person allowed to park in that parking spot. Unassigned parking is where anyone can park anywhere in the lot, but that is not the same thing as scramble parking. Scramble parking is where there aren’t enough spots.

Host: Ok, that’s an important distinction.

Kira: And I would also like to say there could be a situation where you have reserved spots or assigned spots for certain upper management people or executives, and then for everyone else it’s a free-for-all. Those executives have a parking benefit. Even though everybody else may legitimately be in a scramble parking situation, since those executives are guaranteed a parking spot every day, they have a parking benefit.

Host: Thanks for listening to the CRA’s payroll podcast. If you have any questions about the show, if you’d like to provide feedback, or request a topic for a future episode, you can reach us by email at podcast@cra-arc.gc.ca. We’d love to hear from you.