We are often asked via the TaxEd members Q&A portal about the FBT treatment where an employee’s self-education course fees are reimbursed by their employer.
It is very common for staff to undertake further study in areas that assist or enable them to perform their employment role to a higher level. In most cases the cost of these studies is considered work-related and an income tax deduction can be claimed by the employee. Where the employer pays or reimburses such costs, the taxable value of the expense payment fringe benefit is reduced to zero by application of the ‘otherwise deductible rule’.
The effect of s. 26-20 of the Income Tax Assessment Act 1997 is that the following payments are not deductible:
- 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)
- a payment made to reduce a debt to the Commonwealth under Chapter 4 of that Act (i.e. a HELP Debt)
- a payment made to reduce a debt to the Commonwealth under Trade Support Loans Act 2014 Chapter 3
- a payment made to reduce a debt to the Commonwealth, or to a participating corporation, under Social Security Act 1991 Chapter 2B or Student Assistance Act 1973 Part 4A.
The HELP scheme provides assistance for students to pay their student contributions (HECS-HELP), tuition fees (FEE-HELP and VET FEE-HELP), overseas study expenses (OS-HELP) and student service and amenities fees (SA-HELP).
Section 26-20 makes it clear that repayments of HELP loans are not deductible.
However, if the arrangement with the employee is that their course fee is to be reimbursed, then a decision by the employee to fund their fee by way of HELP funding does not alter the otherwise deductible outcome of the course fee except where the course fee is a ‘student contribution’ amount.
Students enrolled in a Commonwealth supported place are eligible to access HECS-Help whereas Fee-Help is aimed at full fee-paying places. A Commonwealth supported place (CSP) is a subsidised place at public universities and a few higher education providers. The Government subsidises a Commonwealth supported place by paying part of the fees directly to the provider. Even though the Government subsidises CSPs, students still have to make a payment towards the education and this is known as the ‘student contribution’ amount.
Students enrolled in a CSP will either pay their student contributions upfront, or if eligible, can access the HECS-HELP scheme to pay their student contributions. A student contribution paid to the higher education provider is not deductible.
If the course is not a CSP then no student contribution amounts are made. These are generally full fee paying courses. These course fees are not affected by s. 26-20 and are deductible assuming the relevant nexus to income earning activities exists.
Summary
The key issue for an employer when considering the FBT treatment of a reimbursement of an employee’s course fees is to establish whether the particular course being undertaken is Commonwealth subsidised (a CSP). If the course is a CSP, the course fee amount paid by the student is a non-deductible student contribution (per section 26-20) and the otherwise deductible rule cannot apply.
It should be noted other costs (e.g. student union fees, text books, etc.) associated with the course should continue to be deductible (assuming the course is work related).