FBT Q&A ‘ When are higher education course fees ‘otherwise deductible’ for FBT purposes?

Question

We have had a number of staff take on further higher education study during the FBT year. In all cases study leave under our current study leave policy has been approved, as it was accepted the course would be of benefit to the employee in undertaking their duties. Are such study costs otherwise deductible?

Answer

Whether higher education course fees result in a FBT liability or not depends on whether the employee would have been entitled to a deduction for the fees in their own capacity on the basis the course undertaken constitutes self-education.

The general principles used to determine the deductibility of self-education expenses are conveniently summarised by the Commissioner in TR 98/9 as follows:

• A deduction is allowable for self-education expenses if the taxpayer’s income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge.
• A deduction is allowable for self-education expenses if the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer’s income from current income-earning activities.

The active encouragement by the employee’s employer to participate in a particular course of study is generally strong evidence to support the above.

If, however, the study will enable an employee to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the employee’s current employment) a deduction will not be available.

It should be noted that the effect of s. 26-20 of the ITAA 1997 is that the following payments are not deductible and therefore cannot be ‘otherwise deductible’ for FBT purposes:

• a student contribution amount, within the meaning of the Higher Education Support Act 2003, paid to a higher education provider (within the meaning of that Act); or
• repayments of HELP loans, whether they be for:
  1. HECS-HELP
  2. FEE-HELP
  3. VET FEE-HELP
  4. OS-HELP
  5. SA-HELP

A student contribution amount is generally payable by the course enrolee in relation to HECS or HELP funded courses.

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