Navigating the new record keeping requirements and kick starting the compliance process

This year, there are changes to the FBT record-keeping requirements that came into effect from 1 April 2024. These changes aim to simplify compliance and reduce the administrative burden on employers. 

This article will guide you through the essential steps for FBT preparation and compliance, including a summary of the alternative record keeping methods. 

Every employer that provides an employee with taxable fringe benefits in a year is required to lodge a FBT return, even if that employer is part of a larger consolidated tax group. One of the common misconceptions that still arises is where taxpayers are consolidating all benefits provided by employing entities into one consolidated FBT return. 

When looking at understanding the FBT obligations of a group of taxpayers, you should take care in assessing which entities are employers and where the requirement to lodge a FBT return for each of those entities arises. 

The current FBT year runs from 1 April 2024 through to 31 March 2025. During this period, all fringe benefits provided to employees need to be assessed, to determine if they are taxable, or eligible for an exemption or reduction. 

FBT returns are due to be lodged and paid to the Australian Taxation Office (ATO) each year by 21 May, or, if lodged electronically by an appropriate registered tax agent, by an extended deadline of 25 June. Regardless, there is always a tight turnaround between year-end (31 March) and these lodgement/payment due dates. Therefore, it is crucial that you establish a timeline which will enable you to collate, question and analyse the necessary information, prepare your calculations, collect employee declarations (including understanding ATO’s new alternative declaration options listed below), seek review (whether internal or external), finalise and lodge the FBT return, and settle any remaining liability, by the relevant due date.  

A helpful approach is to work backwards from the lodgment due date when preparing your FBT compliance timeline, allowing sufficient time for approvals and authorisations for the return, as well as enough time to cater to any other relevant considerations, such as allowing enough time for stakeholders (e.g. another team, external provider) to provide the relevant information needed. A good example is reportable fringe benefits which Human Resource or Payroll Teams often require by a particular date, in order to ensure ATO reporting (for employee end of year Income Statements) is managed on time. 

Preparing an FBT return usually requires input from a variety of different data sources and third party contacts which can be time consuming. This includes (but is not limited to) obtaining general ledger (GL) transactions, payroll data, asset/fixed asset registers, car parking information, vehicle leasing schedules, benefit/compensation data from overseas parent entities or associates, or even incentive data from third parties. 

To further simplify the FBT compliance process, employers should consider leveraging smart automation and data management tools. Modern technology can streamline data collection, analysis, and reporting, across a range of benefits, such as car parking and vehicles, reducing the manual effort required and minimising the risk of errors. Automated solutions, like PwC’s Workforce Automate, can also assist with the FBT classification of GL and expense management transactions, including with the preparation of underlying benefit workpapers and FBT return(s), significantly reducing the time these processes can take, whilst enhancing compliance risk controls and governance measures. 

Employers should also take care when interpreting information received from third parties, as the responsibility of the accuracy and completeness of the FBT return ultimately falls on the employer. As such, it remains important to sense-check and to review, with a critical mindset, any information or reports received to ensure it provides you with what you require and clarity around the data that requires further work. For example, when reviewing novated lease reports received, can all vehicles in this years’ report be reconciled to the information used in last years’ FBT return? The roll out of large-scale salary packaging arrangements, particularly involving high risk benefits such as those provided in remote areas, should also warrant additional governance to ensure employers are not burdened with unexpected FBT costs. 

The process of collating employee declarations has always been a lengthy process, even with technology advancements to customise and automatise this process. Effective from 1 April 2024, alternative FBT record-keeping requirements have been introduced to reduce the compliance burden on employers in some areas. These changes allow employers, in certain circumstances, to rely on existing corporate records instead of employee declarations and other prescribed forms. The ATO has issued FBT legislative instruments on records that can be used as an alternative to employee declarations in place of certain benefits. 

For the first time, employers will be able to make a choice in the 2025 FBT year as to what documentation will be obtained when assessing the FBT liability of an employer in some cases.

Employers will be able to rely on the newly introduced alternative records, continue to keep and retain approved declaration forms under existing processes or use a combination of both methods for each employee for each benefit.

Below is a summary of the key legislative instruments and their requirements which may be applied for the 2025 FBT year: 

• Temporary accommodation for relocation - records to contain specific information about the employee and nature of the accommodation 

• Private use of vehicles other than cars - records for residual motor vehicle fringe benefits to contain specific information about the vehicle and kilometres travelled 

• Fly-in-fly-out (FIFO) and drive-in-drive-out (DIDO) - records to contain information about the employee and the arrangement, examples can be found in the legislative instrument 

• Car travel to employment interview - records to include the employee and travel details to the employment interview or selection tests 

• Car travel to certain work-related activities - records to contain information about the employee and travel details of the work-related activities

• Relocation transport - records relating to reimbursement of cents per kilometre including information about employee and the travel details

• Otherwise deductible benefits - records to contain information about the employee, the dates the benefit was provided and the nature of the benefit

• Overseas employment holiday transport - records to contain information about the employee, the number of family members who travelled in the car and other travel details 

• Travel diaries - records to include employee, duration of travel and activities undertaken in the course of producing their assessable income while travel 

• Living-Away-From-Home while maintaining an Australian home -  records to contain information about the employee, their usual place of residence in Australia and their living away from home (LAFH) arrangements 

Employers opting to use an alternative record option must ensure that the information it holds is accurate, comprehensive, and meets the specific requirements outlined in the relevant legislative instruments. The ATO has provided examples and guidance on what constitutes adequate alternative records, which can be found in the explanatory statements accompanying each determination. As this is the first year of introducing the alternative declaration method, you may find that it is easier to continue to use the ATO approved employee declaration while transitioning business or data processes. 

Employers are encouraged to familiarise themselves with the new requirements and assess how they can integrate these alternative record-keeping methods into their existing systems to achieve compliance and efficiency in managing their FBT obligations.

With the introduction of the alternative record keeping, internal records and employee itineraries or work calendars may be an efficient method for employers to obtain declarations. For example, an employee’s work related itineraries or work calendar could provide essential information such as, roasters, flight dates, relevant appointments etc. One of the challenges employers looking to utilise the alternative methods may face is the consistency of records for each relevant employee across internal data systems, meaning that if robust processes aren’t introduced, declarations and travel diaries may still be required for some employees. 

Lastly, the ATO has a continuous focus around ‘reducing the gap’. Specifically, the ATO is looking to support employers to get their current FBT return correct while also correcting any returns that have been identified to have been lodged incorrectly. To do so, the ATO is providing more information and guidance on their websites as well as introducing comprehensive webinars on the most common benefits sighted such as car fringe benefit and expense payment fringe benefit. See the ATO website for further guidance. 

If you encounter any uncertainties or have any further questions about FBT or employment taxes more generally, including particular technical developments occurring throughout the year, please don’t hesitate to reach out to your PwC representative.  

Lastly, we hosted the PwC Employment Taxes Annual Update in early March and this is now available to watch on-demand by clicking here.