Step 3: establish, maintain and review information systems that support FBT administration
Entities that use internally developed systems for capturing data, such as spreadsheets, should ensure that controls are established to protect the integrity of the data entered. The information produced by the system should be reviewed to ensure that it is accurately calculating FBT information.
Many Australian Government entities use commercial FBT software products to produce FBT return information. Such products will automatically calculate the taxable value of certain benefits (for example, car fringe benefits) once the required information has been entered. This can reduce the risk of human error in relation to data integrity and the calculation process.
Suppliers of commercial FBT software products generally provide annual updates incorporating any changes in legislation as part of their license arrangements. As commercial software products may not cater for all exemptions and concessions available to certain Australian Government entities, FBT staff should gain a full understanding of what information will be produced using these products.
Entities using either internally developed systems or commercial software products should review, on a sample basis, information produced for reasonableness and accuracy.
Entities should be satisfied that the data capture and collation methods used by the entity result in accurate information being collated, in a form that enables FBT data to be easily incorporated into an FBT software product and/or internally developed spreadsheets, as required.
Structure of information systems
Information system design and functionality should effectively support FBT administration.
Information systems should be structured so that FBT information can be extracted for any period. This enables quarterly or half-yearly data integrity reviews to be undertaken, if required, and also helps provide information for financial reporting purposes.
Making effective use of information systems
As previously mentioned, it is necessary for RFBAs to be disclosed on employee payment summaries. This can be a time consuming task unless systems and procedures are established to enable the timely capture and reporting of RFBAs. One of the ways that this can be done is through the configuration of the entity's information system. For example, better practice entities require details of expenditure on fringe benefit items to include the employee's name and Australian Government Service (AGS)/ID number. This requires the expenditure item to be identified 'up front' as a fringe benefit item and for the employees' AGS/ID number to be available when expenditure details are entered into the entity's FMIS.
Accounts processing staff should be trained to recognise transactions that are likely to result in fringe benefits. This may require such staff to enter additional information in relation to particular accounts, but may enable information required for FBT purposes to be more easily obtained.
Account code descriptions for transactions that are likely to result in either a fringe benefit or an exempt benefit should be reviewed by FBT staff early in the FBT year to help ensure that sufficient information is collected at the time of processing. For example, information in addition to the amount of the transaction, such as the employee name and AGS/ID number, or information regarding whether certain transactions relate to business or private use may be required to enable the entity to accurately calculate RFBAs.
Another better practice is for entities that use corporate cards for purchasing to require the cardholder to provide details of the item at the time of purchasing - for example, details of employees/associates who attended a social function, details of non-employees who attended a social function including employees of other Australian Government entities or the name and AGS/ID number of employees who received expense reimbursements.
The cardholder will generally have sufficient understanding of the transaction to be able to collate such information. These details can be included in the FMIS or collated by the FBT work area. This practice enables details to be collated at the time of the event, rather than the FBT Manager having to collate information at FBT year end or a later date.
The FMIS and the payroll system can be used together to capture FBT data. For example, if reimbursements for home telephone expenses are made through the payroll system, the employee can be requested to fill out an otherwise deductible declaration at the time the claim is submitted. The reimbursement can then be coded to general ledger codes such as 'home telephone – private use' and 'home telephone – business use'.
This means that for FBT reporting purposes the total expense payment amount (both general ledger codes) and the otherwise deductible component (business use general ledger code) can be extracted from the FMIS/payroll system and the RFBA data (linked to the employee's AGS/ID number) can be extracted from the payroll system.
End of attention
Structure of general ledger codes
Entities need to determine the most effective way of collating information for each benefit type. For example, if information can be collected through the FMIS and/or the payroll system, relevant codes should be titled in a way that helps processing staff correctly classify the item. The codes should be used in conjunction with a policy or procedures manual that explains their correct use.
Some example better practice general ledger code titles include:
- food and drink – not entertainment (for example, light meals provided at planning days, seminars, or to employees working late)
- food and drink – entertainment not subject to FBT (for example, meal entertainment provided at an eligible seminar)
- food and drink – entertainment subject to FBT (for example, a social event)
- recreation expenditure (for example, golf days or team building recreational activities)
- car expenses
- HECS-HELP or FEE-HELP payments
- study expenses (other than HECS-HELP or FEE-HELP)
- home telephone expenses.
If such general ledger codes are used, FBT staff can use the information from the FMIS, including detailed descriptions where applicable, in conjunction with 'otherwise deductible' declarations, recurring fringe benefit declarations and other relevant records, to determine the taxable value of fringe benefits.
Entities should keep detailed records supporting all FBT calculations. Subsection 132(1)External Link of the FBTAA requires records to be kept for a period of five years after the completion of the transactions or acts to which they relate. In certain circumstances, the ATO may be able to amend an assessment up to six years after the date of the original assessment. Therefore, better practice entities will retain records for at least six years from the date of assessment to help determine the correct FBT payable amount.
Supporting work papers should be maintained in a manner that enables the required information to be easily accessed. This is particularly important in the event of staff turnover (where the responsibility for FBT management is moved from one work area to another or where a new system is introduced for FBT data collation).
Where a fringe benefit is provided to an employee of an associated entity, a copy of the records must be given to the associated entity within 21 days after the end of the FBT year (under subsection 132(2)External Link of the FBTAA).
Specific details on the records that should be kept are covered in the section titled Better practice 5: prepare and review the FBT return and supporting processes.
Private rulings and internally prepared tax position papers
Where the FBT treatment of an item is unclear, entities should take steps to clarify the position as soon as possible. It is good practice for the entity to prepare a tax position paper, seek advice from a tax adviser or seek advice or a private ruling from the ATO.
A tax position paper is a technical paper that documents the approach an entity takes on a tax matter. Tax positions taken by an entity will include the determination of the FBT treatment of a particular item. The tax position paper should set out the factual situation, the position taken and the rationale for this position.
Private rulings, other ATO guidance, external advice and internally prepared tax position papers should be reviewed to ensure that they reflect current legislation and current entity practices. To assist in doing this, private rulings and tax position papers should be dated, annotated for changes in entity practice or legislation and stored for easy reference.