‘Entertainment’ deep dive

Assessing whether food or drink transactions constitute ‘entertainment’ is a key FBT challenge, determined by why, what (type of), when, and where the food or drink is being provided. To answer these questions, several data sources are required to create a complete dataset for accurate analysis. This presents two key challenges:

• Firstly, collating data - the information relevant to these transactions comes from multiple sources (General Ledger, Expense Management, etc.), as well as from across various business processes.  
• Secondly, organising the collated data to enable accurate tax disclosure. Due to transaction volume, this can be a challenge for resource-constrained tax functions. 

With respect to the latter challenge, it’s also relevant to note that accurate tax analysis can be compromised when multiple resources are utilised. For example, if a tax function has five members, there are likely to be natural variances in FBT classification as a product of human bias/background and the subjectivity of tax ‘rules’. 

Further compounding this is the overlay of competing demands, coupled with the tight tax deadline; even with the tax agent extension, three months to prepare and lodge an FBT return is simply not enough. 

For the best part of a decade, taxpayers, tax professionals and their representative professional bodies have lobbied the ATO and Federal Government to delay the FBT lodgment deadline to no avail. However, the increased flexibility and capability of technology offers hope that there may be a silver bullet.

Technology as a risk mitigant

Circling back to the ‘entertainment’ example above, the first challenge is data wrangling. In this regard, while Excel leads at spreadsheet augmentation, data wrangling generally involves building workflow processes, which better-honed software is capable of automating. 

Further, where systems and upstream data outputs remain broadly consistent year upon year, the workflow is capable of ongoing/annual leverage via automation, crystallising an enduring benefit. 

Similarly, technology can be a game-changer in developing accurate tax analysis for ‘entertainment’. Akin to data-wrangling, a purpose-built workflow can not only automate assessment (alleviating resource-constraints), but also ensure consistency (i.e. harmonious analytical process). 

To elaborate, ‘entertainment’ analysis is, generally, highly dependent on data parameters. By way of example, the word ‘restaurant’ in the ‘description’ field of an expense claim may typically signify ‘entertainment’ (why: social occasion, what: elaborate meal, when: provided outside of work time, where: consumed off-premises). However, other data parameters may alter this assessment (e.g., the ‘restaurant’ transaction may be coded to a ledger account reserved for travel claims, amending the why).

A purpose-built workflow could sequence this assessment by isolating all ‘restaurant’ transactions as ‘entertainment’ but re-categorise it when coded to ledger account ‘x’ and the spend is less than, say, $60 per person. 

The power of such automated analytics is strengthened when paired with visualisation, which provides curated insights and potential areas of focus for supplementary manual reviews. This visualisation allows for streamlined reviews using tangible data insights, rather than manual line-by-line reviews. 

Workforce tax data - The technology use case

As the ‘entertainment’ illustration demonstrates, the appropriate application of technology can enable efficiency, productivity and data insights, whilst ensuring a complete and accurate analysis of complex and high-volume workforce tax data. 

At a high-level, the ‘entertainment’ example demonstrates just some of the innumerable benefits that investment in technology can deliver, including:

• Annuity leverage: Once configured, whether for data-wrangling or tax assessment, workflows can be leveraged to facilitate future compliance (mitigating the risk of differing approaches year-to-year).
• Consistency: Automated transactional analysis and assessment (mitigating the risk of multiple resources or subjectivity creating inconsistency or inaccuracy)
• Audit trail management: Modern technology can provide a workflow snapshot which, when coupled with plain english logic framing the automation, enables stronger governance.
• Review ease: Visualisations provide clear insights and transparency, allowing for robust and timely secondary reviews and sign-off. 

Human-led, technology-enabled approaches that underlie an organisation’s governance structures also ensure conformity with regulator expectations. For instance, the ATO’s managerial controls 6 and 8 are exemplified through an automated workflow, which builds a complete dataset (data wrangling), and has a uniform assessment methodology for accurate tax outcomes. 

Ultimately, whilst the technology journey (particularly for workforce data) is likely to be bespoke for each organisation, it is evident that the historical challenge of multiple systems and voluminous data can be overcome with the capabilities of modern technology. The next step, then, is to find the right technology that suits your organisation’s unique challenges. Our extensive experience in working with clients across a broad spectrum of sizes, industries  and resourcing models have allowed us to gain critical insights into the different challenges and opportunities organisations face. 

Using these insights, we’ve developed Workforce Automate - a first-of-its-kind modular technology, providing broad coverage across workforce compliance and risk analysis - including FBT, pay-as-you-go withholding, superannuation guarantee, employee share scheme reporting, payroll tax, workers’ compensation, and vendor/contractor review - all within the one platform. Connect with us to find out more about Workforce Automate and request a demonstration! 

You can also read other articles in our Connected Tax Compliance thought leadership series to discover more insights.