Let me begin by saying I’m certainly not encouraging you to conduct staff training outside in the snow. Especially not which carrying Olympic weights! I just through it was a great picture…
Any business, regardless of size, needs a skilled team working with the owner(s) to be successful. As such, it is common for business owners to invest in technical staff training. This may take the form of seminars, short-courses or even full qualification to get their team members up to peek performance. In many cases this sort of investment is the only way for the employee to continue in their role long-term. BUT, are these payments tax deductible?
There are a few points to consider before you claim that tax deduction for staff training…
Can I claim a deduction for costs associated with training my team members?
As a general rule, a deduction can be claimed for the total cost associated with providing education to employees. This includes the course fees as well as study materials and travel expenses. However, what is commonly overlooked by business owners and accountants alike is whether or not the training triggers a Fringe Benefits Tax (FBT) issue for the business.
On a related topic, I was recently discussing the topic with a bookkeeper here in Brisbane who picked up this exact issue in a client’s work. Don’t you love it when your service providers go above and beyond rather than just giving you the bare minimum you pay them for? Great work!
Fringe Benefits Tax
Is staff training also subject to Fringe Benefits Tax?
Absolutely! Paying for your employee’s work-related education expenses would generally constitute an expense payment fringe benefit and be subject to FBT. However, the FBT legislation allows for a full or partial reduction of FBT payable on the benefit provided to your team members where the ‘otherwise deductible’ rule is applicable.
What is the otherwise deductible rule? Put simply, imagine the staff member paid for an expense themselves. I know, not likely to happen but just imagine! If they paid for it rather than you would they be able to claim a tax deduction for it? Yes? Great, then the business can provide the benefit to the employee without having to pay FBT on the amounts. If we apply the rule to staff training the big question to answer is ‘would this training be tax deductible to the employee if they paid for it themselves?’.
When is a training expense deductible to an employee?
This will depend on the type of course or education undertaken by the employee and the subjects covered. The ATO have provided some guidance to help taxpayers work out when training costs are deductible. You can see the detailed advice here.
Generally speaking, the training must relate specifically to an employee’s current employment and:
- maintain or improve the specific skills or knowledge the employee requires in their current empolyment, or
- result in, or possibly result in, an increase in income in their current employment.
Where the training might generally (rather then specifically) relate to their current employment or enable the employee to take on a new role or job once completed the amounts are generally not deductible.
At this point it is important to note that employers would generally not provide education to their employees unless it specifically improves the skills they need for their current role so the otherwise deductible rule will usually apply. It never hurts to work through the exercise anyway, especially on large training expenditure. The last thing we want is to fail a Fringe Benefits Tax audit by inadvertently omitting the information.