What’s emerging? Proposed reduction to FBT record keeping compliance

What’s emerging? Proposed reduction to FBT record keeping compliance 

15 September 2022

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Background

There are currently over 20 employee declarations to be considered by an employer when preparing a fringe benefits tax (FBT) return. In addition, there are further ancillary records required for substantiation purposes (e.g. logbook records, travel diaries, etc.). Obtaining and maintaining this documentation is a significant compliance burden for employers - for example, identifying and circulating relevant declarations to eligible employees, chasing up signatures, and maintaining completed declarations on file, all before the FBT lodgment due date. 

Furthermore, for a number of benefit types, where a declaration has not been able to be obtained (e.g. with respect to an employee whose employment has been terminated), notwithstanding that corporate records and/or organisational policies/practices support the application of FBT concessions, these are not able to be applied due to the absence of completed declarations. 

To help address this compliance burden, new measures are proposed to reduce and simplify FBT record keeping whilst producing similar taxation outcomes with lower compliance costs. Treasury has released Exposure Draft law on this proposal for public consultation.

What’s Emerging?

Commissioner empowered to specify ‘alternate’ records

The Government has acknowledged that the FBT record keeping requirements can result in a duplication of existing records that have already been captured by employers through other systems. This was first noted and a proposed simplification intent announced by the former Government in the 2020-21 Federal Budget.

The Exposure Draft provides the Commissioner of Taxation with the power to make determinations, by legislative instrument, specifying the kind of ‘adequate alternative’ documents or records which reasonably satisfy an employer’s required records for the various types of fringe benefits. 

At this stage, the Exposure Draft is largely limited to declarations and other documentation (e.g. travel diaries) related to valuation and concessions and does not extend to election forms (such as for the 50/50 split method for meal entertainment, etc.).

Notably, employers will be able to continue using the approved forms instead of the alternate methods, if desired. It also appears that there is no intention for the Commissioner to develop instruments covering all relevant records, and a number of these are likely to remain (e.g. logbooks and odometer records for car benefits).

First proposed ‘alternative’ documents 

As part of the public consultation, Treasury has also released two draft legislative instruments that provide the Commissioner’s ‘alternative’ records with respect to travel diaries and the relocation transport declaration.

The instruments set out the minimum information that must be present in any type of record an employer may keep. There is no limit on the number of records that may, in aggregate, meet the information requirements, and information can come from multiple sources. Examples of information sources may include employment contracts, payroll records, job descriptions, employer and employee correspondence (for example via email or text message), employer asset registers, logbooks, employer policies, financial records / ledger accounts, notations to the accounts, calculations of private travel, etc. We have summarised the adequate alternative record keeping requirements below:

Looking forward

The proposed measures are a welcome development and should assist employers in alleviating the compliance burden that is often associated with the FBT regime. 

Once enacted, to ensure maximum utility and application, it is hoped that the Commissioner will, as soon as practicable, release a suite of instruments to cover, in particular, the most common benefit categories that currently require declarations. Examples include otherwise-deductible-rule declarations (particularly for benefits relating to working-from-home and work-related COVID-19 testing), living-away-from-home (LAFH) benefits (including fly-in-fly-out (FIFO) arrangements), etc. 

For a number of relevant benefit categories, the subject matter of the declarations are self-evident and sufficient corporate records are generally in place to augment these. For example, in relation to FIFO arrangements, the nature of employee rosters, associated flight schedules and accommodation logs will generally demonstrate where employees reside during ’on’ periods and that employees are returning to the normal residence during ‘off’ periods. 

Once enacted, the measures will commence in respect of FBT years that commence on or after the beginning of the quarter after Royal Assent is received. This means that the new rules cannot apply to the current FBT year. Interested parties are invited to comment on this consultation up until 30 September 2022. 

Should you have any thoughts or suggestions regarding the Exposure Draft, please reach out to your PwC contact.