Rudd’s fringe benefit tax change drives an SME admin increase – what it means for you

Small to medium businesses will be burdened with more administration obligations following Prime Minister Kevin Rudd’s decision to abolish automotive salary sacrificing arrangements.

The decision was made to pay for the move to an emissions trading scheme one year ahead of schedule. But the change means small businesses will only be able to use one method of calculating fringe benefit tax for cars – one which requires more paperwork.

“Not only does this mean potentially an increased FBT cost,” Elizabeth Lucas of Grant Thornton told SmartCompany this morning, “but it means extra administration because of the new requirements.”

The statutory method allows taxpayers to claim a flat 20% of travel for personal use. This method will be discontinued.

The alternative is known as the “operation cost method”. This requires businesses to keep a logbook in order to document how much of a car’s use was for business, as opposed to private, travel.

This will now be the only method of claiming FBT breaks for cars. And while tax experts say businesses will still be able to claim the same benefit, there is extra administration – the logbooks need to be kept for a continuous period of 12 weeks.

As Lucas points out, this is going to multiply the administrative load of SMEs.

“Going forward, there is no choice. It’s the logbook or nothing, which means extra administration.

“On the employee side, staff might have been salary packaging car benefits. Those arrangements have disappeared, as they depended on the use of the statutory formula method.”

Lucas also warns businesses need to familiarise themselves with the logbook method before they are forced to switch over. Plenty of businesses are missing out on entering crucial pieces of data – including the ever-important reason for travelling.

“The electronic log books aren’t really going to ensure people get that part right,” she says.

“So while making a logbook online is easier than carrying a piece of paper, you still need to specifically detail what the business purpose of your trip was.”

The change will have wide ramifications for the automotive industry, which is already suffering from various collapses, along with the recent announcement that Ford will close its Australian plants.

So far, the automotive sector has protested the fringe benefits tax change, with Toyota saying the change will have a large impact on businesses and sales to government fleets.

In a statement, Federal Chamber of Automotive Industries chief executive Tony Weber said the $1.8 billion savings effort could have “dire consequences”.