Can your small business claim tax deductions for employee training fees?

Running a successful small business sometimes requires an up-skilled team. If you need your employees to grow their expertise in a particular area, spotting them for short-courses, seminars, one-day intensives, professional qualifications or a bunch of “101s” can be a worthwhile endeavour.

But when providing staff with these courses, there are a few things for employers to consider from a tax viewpoint.

1. Can I claim a deduction for course or education fees provided to employees?

As general rule, a deduction is available for the full costs incurred in providing education to employees (such as course fees, travel costs and so on).  What businesses tend to forget however, is to consider possible FBT implications (see below).

2. Is the provision of education also subject to FBT?

Yes. Paying for your employee’s work-related course fees would generally constitute a fringe benefit and be subject to FBT. However, the rules within the FBT legislation allows for a full or partial reduction of FBT payable on the benefit provided that the “otherwise deductible” rule is met.

Simply put, the otherwise deductible rule assumes that if the employee had hypothetically incurred the expense, they would have been able to claim a deduction for the expense themselves. It follows that if the otherwise deductible rule could apply, the employer can reduce their FBT liability to the extent that the hypothetical deduction would have been allowed to the employee.

Certain membership fees and subscriptions paid by an employer are specifically made exempt from FBT (such as a subscription to a trade or professional journal). If there is any FBT expense, however, that amount can be deductible to the business.

3. When is an education expense considered to be “hypothetically deductible” to the employee?

This will depend on the type of course or education undertaken by the employee.  The Tax Office has provided guidance in working out whether course or education fees incurred are deductible to an employee. See us for specifics.

Generally, the course must have a sufficient connection to an employee’s current employment and:

  • maintain or improve the specific skills or knowledge the employee requires in current employment, or
  • result in, or possibly result in, an increase in income in current employment.

Employees generally cannot claim a deduction for an education expense if it doesn’t have a sufficient connection to their employment, even if:

  • it might be generally related to it, or
  • it enables the employee to get new employment.

In most cases, employers will provide for education costs that are beneficial to their business, and so the otherwise deductible rule should apply such that no FBT is payable.