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  • Better practice 2: better practice checklist

    An entity that has established an effective FBT environment will have implemented some or all of the better practices identified in the following checklist. The list is not intended to be prescriptive, as the measures taken by individual entities to control its risks will depend on its particular operating environment.

    Entities that can answer 'Yes' to most of these questions are likely to have an effective internal control environment in relation to FBT administration. If most of the answers are 'No', entities should consider whether there is an opportunity to review their existing FBT control environment arrangements.

    Indicators of better practice


    Has overall responsibility for FBT administration be formally assigned to an individual or group?


    Are FBT resource requirements periodically reviewed?


    Do staff who are responsible for FBT compliance have an adequate understanding of FBT legislation and associated ATO guidance?


    Are various groups with involvement in the administration of FBT provided with appropriate guidance?

    For example, detailed procedures for use by FBT staff and general FBT information for use by other staff.


    Are there policy documents (such as CEIs and other procedures) covering an entity's FBT responsibilities?


    Are policies and procedures updated at least annually to reflect changes in the type of benefits provided by the entity or changes in legislation, ATO guidance and entity practices?


    Are updates to procedures reviewed and signed off by a person with a good knowledge of FBT?


    Has the entity reviewed its FBT information system for data accuracy and ease of use?

    For example, has a transaction been traced through the FBT process to check whether the information system captures all relevant data?


    Has the entity reviewed its FMIS and payroll system to determine whether they enable FBT data to be collected accurately and effectively?


    Are information systems configured so that FBT information can be produced for any period, such as the FBT year and the financial year?

    For example, to enable quarterly data integrity reviews and to assist with financial statement reporting of executive remuneration?


    Have general ledger codes been structured so that FBT information can be easily identified and collated?


    Are working papers that support FBT transactions kept for six years from the date of the transaction?


    Is advice and documentation of discussions with the ATO and/or tax advisers dated, annotated and properly documented?


    Are the specific FBT training needs of staff identified and internal/external training provided to meet such needs?


    Are training plans maintained for staff involved in FBT administration so that regular training is provided and future training needs assessed?


    Are procedures in place to notify associated entities of fringe benefits provided to their employees?


    Training needs self-assessment

    Staff should self-assess their own training needs and take steps to ensure that they have sufficient FBT knowledge to undertake the role assigned to them. This training needs self-assessment can be used to help staff do so.

    If staff answer 'No' to any of the questions, it may indicate a potential training need. Entities should consider whether appropriate training can be provided internally or whether external training is required. The extent and nature of training will depend on such factors as the size and complexity of the entity and the number and types of benefits that are provided.

    Less complex FBT issues that may highlight a need for basic FBT training

    Are you aware
    of this issue?

    1. Liability to pay FBT

    FBT is paid by employers. This is the case regardless of whether the benefit is provided by the employer, an associate of the employer, or a third party under an arrangement.

    RFBAs are reported on employee payment summaries. RFBAs are not subject to income tax. They are taken into account in determining liability for certain payments such as the Medicare levy surcharge (MLS), child support obligations and entitlement to certain government benefits.


    2. Salary sacrifice arrangements

    A salary sacrifice arrangement is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar cost (to the employer).


    3. Gross-up rate used to calculate RFBAs

    The type 2 gross-up rate (1.8692) is always used to calculate RFBAs.


    4When the type 1 gross-up rate is used

    The type 1 gross-up rate (2.0647) is used when the person who provided the fringe benefit (or another member of the same GST group) has an entitlement to claim an ITC in relation to providing the benefit. The type 1 gross-up rate applies even if the entity does not actually claim the ITC.


    5. Methods used for calculating car fringe benefits

    The operating cost method and the statutory formula method are the two methods that can be used to calculate the taxable value of car fringe benefits.


    More complex FBT issues that may highlight a need for additional training

    Are you aware
    of this issue?

    1. Car fringe benefits

    The method used for calculating car fringe benefits (operating cost method or statutory formula method) applies on a car by car basis. Some cars can be taxed using the operating cost method and some cars using the statutory formula method. The method used for calculating the taxable value of the provision of a certain car may differ from year to year.


    2. Residual fringe benefits

    The private use of a vehicle which is not a car will be a residual fringe benefit if the private use is not restricted to:

    • travel between home and work
    • travel that is incidental to travel in the course of performing employment-related duties
    • other minor, infrequent and irregular private use.



    3. Staff awards

    Staff awards may be taxed as a property fringe benefit, expense payment fringe benefit, tax-exempt body entertainment fringe benefit or residual fringe benefit depending on the nature of the award.


    4. Living-away-from-home and travel allowances

    The payment of a living-away-from-home allowance (LAFHA) to an employee who is living-away-from-home is a fringe benefit that will be valued in accordance with section 31External Link of the FBTAA.

    A travelling allowance forms part of the employee's assessable income. However, it will not need to be subject to PAYG, shown on the employee's payment summary or included in the employee's income tax return if it does not exceed the reasonable allowance limit and has been fully expended on deductible expenses.

    This is because the ATO has issued a notice of variation in accordance with section 15-15External Link of Schedule 1 to the Taxation Administration Act 1953, varying the withholding on a travel allowance to nil.


    5Allowances and reimbursements

    A payment is an allowance where a person is paid a definite predetermined amount to cover an estimated expense. Other than LAFHAs and some cents per kilometre motor vehicle allowances (MVAs), most allowances are assessable income of the employee.

    A payment is a reimbursement when the recipient is compensated exactly (whether wholly or partly) for an expense already incurred although not necessarily disbursed or where the employee is required to acquit the allowance.

    Taxation Ruling TR 92/15External Link discusses the difference between an allowance and a reimbursement.


    6. Reimbursement of rent

    If an employee who is living-away-from-home in order to perform employment duties pays their own rent, the reimbursement of that rent is exempt from FBT, providing a living-away-from-home declaration is provided.

    If the employee is not living-away-from-home, the reimbursement of rent will be an expense payment fringe benefit and the taxable value will generally be the amount of rent reimbursed.

    If the dwelling is located in a remote area, subsection 60(2A)External Link of the FBTAA may enable the taxable value of the expense payment fringe benefit relating to the reimbursement of rent to be reduced by 50% of the recipient's expenditure.


    7. Reimbursement of HECS-HELP, FEE-HELP and other study expenses

    The reimbursement of HECS-HELP, FEE-HELP and other study expenses are expense payment fringe benefits.

    The otherwise deductible rule will not apply to either HECS-HELP or FEE-HELP repayments. However, it may apply to the reimbursement of tuition fees if the employee is not a Commonwealth supported student and the criteria for self-education expenses are met.


    8. Overpayment of salary

    Salary payments are not fringe benefits. However, a loan benefit may arise if an agreement is entered into for an employee who has been overpaid a substantial amount of salary to repay the overpaid amount over a period of time.


    9. Tax-exempt body entertainment

    Section 58PExternal Link of the FBTAA (minor benefit exemption) does not apply to tax-exempt body entertainment except where either:

    • the provision of the entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal, other than light refreshments
    • the entertainment is provided to the employee (or associate) recognising the special achievements of the employee in a matter relating to the employment of the employee.



    10. Tax-exempt body entertainment

    The exemption from FBT for property (for example, food or drink) consumed by an employee on business premises on a working day under section 41External Link of the FBTAA does not apply to an Australian Government entity if the food and drink involves the provision of entertainment for which an employer subject to income tax could not claim an income tax deduction.

    For example, the cost of food and drink provided at a social function on business premises on a working day will not be exempt from FBT under section 41 of the FBTAA for an income tax-exempt Australian Government entity.


      Last modified: 23 Jul 2015QC 18627