Many small businesses could find themselves caught in the fringe benefits tax (FBT) net, not as a result of helping employees cheat the tax system, but due to the actions of large corporations maximising their revenue.

Some of the most complex areas of the income tax act are those that deal with the FBT regulations.
 
Originally the FBT system was set up to catch blatant tax avoidance used by high paid employees. Under these avoidance schemes salary was packaged and paid in the form of entertainment, school fees, club membership, private car costs and other benefits.

The introduction of the FBT system shifted the onus of tax compliance from the employees benefiting from the benefits to the employers paying the benefits.
 
As is often the case the FBT system developed into another source of revenue and not just an attack on tax avoidance.

Over the years the type of benefits caught by the FBT system included benefits provided by employers that had nothing to do with employee tax minimisation schemes.

A prime example of this was making the cost of Christmas parties an FBT taxable item. In addition the ATO has tried to increase the reach of the FBT system.

They even tried to have credit card reward schemes and frequent flyer programs made taxable benefits.

Recently the owners of large shopping centres have started to introduce car parking fees for their customers. An example of this is the Westfield group that has free parking for the first three hours but charges up to $20 for all day parking. This now means the risk of businesses being liable for car parking FBT has increased.

A business becomes liable for car parking fringe benefits tax where it provides parking for more than four hours on its premises to its employees, and is situated within one kilometre of a commercial car park where the minimum all day cost is more than $7.25 a day.

This means if you run a business within 1 kilometre of any commercial car park, including shopping centres that charge for parking, you could be liable for FBT where you provide parking for employees.

Thankfully there is a small business exemption from paying car parking FBT that is based on turnover. Basically where a business has a total income figure of less than $10 million it will not have to pay FBT on car parking.

Unfortunately if you run a small business where your sales turnover exceeds this limit you will be liable for car parking FBT if a commercial car park is within one kilometre.
  
Some businesses located in these large shopping centres have tried to help employees by subsidising the cost of the recently introduced parking fees. By doing this they may have made themselves liable for FBT tax through the car parking expense payment benefit provisions.

The FBT system in general is extremely complicated, the rules and regulations relating to car parking are mind numbingly complex.

There are five different methods that can be used to calculate the FBT for car parking benefits. Any business owners unsure of whether they are liable for car parking FBT tax should seek professional advice.

By doing this they can avoid paying FBT plus penalties as a result of an ATO tax audit. They can also ensure they use the appropriate method for calculating the benefit to reduce the cost of car parking FBT tax.
   
The Henry review of Australia's taxation system is due to deliver its findings in December 2009. An indicator of how thorough the review has been, and how much the committee was focused on fairness and equity as opposed to maximising revenue collection, will be its recommendations relating to the FBT system.

It can only be hoped that this overly complex area of taxation will be completely overhauled or done away with.
 
Email any small business questions to max@taxbiz.com.au

Tax for small business, a survival guide, by Max Newnham is available in bookstores.