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Deductions on Training Courses for Employees

One of the keys to a successful business is having a team of individuals who are proficient with the roles they are given. However, in order for the team members and the business to grow as whole, companies should provide their employees the opportunity to participate in training courses or seminars where they can expand their knowledge in certain areas of the business.

With regards to arranging courses for employees on a tax viewpoint, generally, tax deductions (course rates, travel cost, etc.) for the incurred cost of the provided training can be claimed. However, what businesses often overlook are the Fringe Benefits Tax (FBT) implications of providing training for their employees.

Clearly, an employer who covers the costs of a work-related training constitutes a fringe benefit and is subject to FBT. However, the FBT law has a rule that allows a reduction on FBT payable when the “otherwise deductible” rule is met.

This rule applies when an employee hypothetically incurs the expense for the course, they would be able to claim a deduction for the cost themselves.

Based on the guidelines from the Australian Tax Office (ATO) a training is considered as hypothetically deductible to the employee if:

1. The training or course is geared to maintain or improve the skills and knowledge of a team member’s employment;
2. Or the training can result to an increase of income in the current employment.

However, team members are not eligible for a deduction for training costs when it does not have a sufficient connection to their employment; even if the training is generally related to the employment, or even if it enables the employee to get a new employment.

Businesses, however, could then reduce their FBT liability when the hypothetical deduction applies to the employee.

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written by:

McKinley Plowman