Private ruling: Expense payment fringe benefits - otherwise deductible rule
Date of advice: 1 July 2025
Published: 15 September 2025
Ruling period: Fringe benefits tax (FBT) year ending 31 March 20XX | FBT year ending 31 March 20XX | FBT year ending 31 March 20XX | FBT year ending 31 March 20XX
Date scheme commenced: 1 April 20XX

Ruling: Q1: Will tuition fees paid by the Employer on behalf of an employee give rise to an expense payment fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes | Q2: If the answer to Question 1 is yes, will the taxable value of the expense payment fringe be reduced to nil pursuant to the otherwise deductible rule in section 24 of the FBTAA where the fees were not in respect of a Commonwealth Supported Place? | A2: Yes

Relevant facts and circumstances: The Employer operates a Scholarship Program to fund the education of students. Under the program, the Employer: • pays all tuition and supervision fees related to the Scholarship Program directly to the University • pays recipients a textbook allowance on commencement of the Program; • pays placement allowance on commencement of their professional placement; and • pays an appointment allowance The tuition fees paid are either full tuition fees or Commonwealth Supported Places. In return, scholarship recipients are required to sign a Scholarship Agreement with the Employer, committing them to: • successfully completing the required studies and training • accept appointment as a permanent full-time employee upon completion of the required studies and training • remain as a permanent full-time employee for a minimum period of 3 years 90% of Scholarship holders take up the permanent full-time employment upon completion of the required studies and training. Currently, the Employer withholds tax from the allowance payments and pays fringe benefits tax on university course fee payments as an expense payment fringe benefit. Scholarship holders are added to the Employer's payroll as 'future employees' and are issued with annual payment summaries. The Employer would not apply the otherwise deductible rule where the Employer was paying fees for Commonwealth Supported Places.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 20 | Fringe Benefits Tax Assessment Act 1986 section 24 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 section 148(1) | Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: The tuition fees paid by the Employer on behalf of an employee is a payment in discharge of the student's obligation to pay an amount to the University. Such a payment will give rise to an 'expense payment fringe benefit' as defined in 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: An 'expense payment fringe benefit' is defined in subsection 136(1) of the FBTAA to mean 'a fringe benefit that is an expense payment benefit'. The terms 'fringe benefit' and 'expense payment benefit' are considered below. | Detailed Reasoning - 'Fringe benefit': The definition of a 'fringe benefit' in subsection 136(1) of the FBTAA provides that a fringe benefit will arise where the following conditions are all satisfied: 1) A benefit is provided at any time during the year of tax. 2) The benefit is provided to an employee or an associate of the employee. 3) The benefit is provided by: a. their employer; or b. an associate of the employer; or c. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or d. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer: i. participates in or facilitates the provision or receipt of the benefit; or ii. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so; 4) The benefit is provided in respect of the employment of the employee. 5) The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. A discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied. A benefit is provided Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including: any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under: (a) an arrangement for or in relation to: i. the performance of work (including work of a professional nature), whether with or without the provision of property; ii. the provision of, or of the use of facilities for, entertainment, recreation, or instruction; or iii. the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar extraction; (b) a contract of insurance; or (c) an arrangement for or in relation to the lending of money. In this case, a benefit is provided in the form of tuition fees paid by the Employer on behalf of an employee. This falls with the definition of a 'benefit' as defined in subsection 136(1) of the FBTAA. As such, the first condition is satisfied. | Detailed Reasoning - The benefit is provided to an employee or an associate of the employee: An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee. As per the facts, the Employer pays all tuition fees on behalf of a future employee (the employee) on the condition that they agree to being appointed in a permanent full-time role upon completion of the required studies and training. Therefore, the provision of the benefit is provided to an employee, the second condition (that is, a benefit is provided to an employee or an associate of an employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is provided by an employer, an associate of the employer or a third party: 'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer. The benefits are provided by the Employer to a future employee and therefore the Employer is the future employer. Therefore, the third condition (i.e. the benefit is provided by an employer) has been satisfied. | Detailed Reasoning - The benefit is provided in respect of the employment of the employee: The phrase "in respect of" is defined in subsection 136(1) in relation to the employment of an employee to include by reason of, by virtue of, or for or in relation directly or indirectly, to that employment. Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee: (a) Whether or not the benefit is also provided in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, any other matter or thing; (b) Whether the employment will occur, is occurring, or has occurred; (c) Whether or not the benefit is surplus to the needs or wants of the recipient; (d) Whether or not the benefit is also provided to another person; (e) Whether or not the benefit is, to any extent, offset by an inconvenience or disadvantage; (f) Whether or not the benefit is provided or used, or required to be provided or used, in connection with that employment; (g) Whether or not the provision of the benefit is, or is in the nature of, income; and (h) Whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee. In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 ( Knowles ), the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal connection or relationship between the benefit and the employment'. Based on the facts, the benefits provided being the tuition fees paid by the Employer to fund the education of the students has a substantial connection to their future employment as permanent full-time employees. As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is not specifically excluded from the definition of a fringe benefit: With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit. In considering whether the tuition fees paid by the Employer will be an exempt benefit, it is necessary to initially determine the type of fringe benefits that is applicable. | Detailed Reasoning - 'Expense payment benefit': Subsection 136(1) of the FBTAA defines an expense payment fringe that is an expense payment benefit. Expense payment benefit means a benefit referred to in section 20 of the FBTAA. Section 20 of the FBTAA sets out the circumstances in which a payment or reimbursement will be an 'expense payment benefit'. Paragraphs 20(a) and 20(b) state: Where a person (in this section referred to as the provider): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the recipient) in whole or in part, in respect of an amount of expenditure incurred by the recipient; the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. In this case, the Employer makes the payment in discharge of an obligation of the employee to pay an amount to the University (third party). As such, the payment is considered to be an 'expense payment benefit' under section 20 of FBTAA. As there is no exemption under section 20 of the FBTAA for payment of tuition fees, the tuition fees paid by the Employer on behalf of the employee is an expense payment fringe benefit. Based on the above discussion, the definitions of a 'fringe benefit' and an 'expense payment benefit' are satisfied, which in turn satisfies the definition of an 'expense payment fringe benefit' as defined in subsection 136(1) of the FBTAA. | Detailed Reasoning - Question 2: If the answer to Question 1 is yes, will the taxable value of the expense payment fringe be reduced to nil pursuant to the otherwise deductible rule in section 24 of the FBTAA where the fees were not in respect of a Commonwealth Supported Place? | Summary: It is considered that the ODR would apply to reduce the taxable value of the expense payment fringe benefits to nil under section 24 of the FBTAA where the fees were not in respect of a Commonwealth Supported Place. | Detailed Reasoning - Detailed reasoning: The taxable value of an external expense payment fringe benefit is determined under section 23 of the FBTAA which states: Subject to this Part, the taxable value in relation to a year of tax of an external expense payment fringe benefit provided during the year of tax is the amount of the payment referred to in paragraph 20(a), ...reduced, in a case to which paragraph 20(a) applies, by the amount of the recipient's contribution. In simple terms, where paragraph 20(a) of the FBTAA applies, the taxable value of an expense payment fringe benefit is the amount of payment made by the 'provider' (in this case, the Employer) on behalf of the employee (the 'recipient') in discharge of the employee's obligation, reduced by the recipient's contribution. Therefore, the taxable value of the expense payment fringe benefit under section 23 of the FBTAA will be the amount paid by the 'provider' (the Employer) to the third party (University) for the tuition costs, unless the ODR (as described below) applies. | Detailed Reasoning - Otherwise deductible rule: The taxable value of an expense payment fringe benefit can be reduced in certain circumstances by the ODR if the employee would have been entitled to claim an income tax deduction for the expense if they had not been reimbursed by the employer. The requirements for the ODR to apply to expense payment benefits are set out in section 24 of the FBTAA, which states: Where: (a) the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; and (b) if the recipient had, at the time when the recipients expenditure was incurred, incurred and paid unreimbursed expenditure (in this subsection called the gross expenditure ), in respect of the same matter in respect of which the recipients expenditure was incurred, equal to: (i) in the case of an in-house expense payment fringe benefit - the amount that, but for this subsection and Division 14 and the recipients contribution, would be the taxable value of the expense payment fringe benefit in relation to the year of tax; or (ii) in the case of an external expense payment fringe benefit - the amount of the recipients expenditure; a once-only deduction (in this subsection called the gross deduction ) would, or would if not for Divisions 28 and 900 of the Income Tax Assessment Act 1997 , have been allowable to the recipient under that Act or the Income Tax Assessment Act 1936 in respect of the gross expenditure; ... A 'once-only' deduction is defined in subsection 136(1) of the FBTAA as follows: once-only deduction, in relation to expenditure, means a deduction in a year of income in respect of a percentage of the expenditure where no deduction is allowable in respect of a percentage of the expenditure in any other year of income. | Detailed Reasoning - Was an expense payment benefit provided to an employee?: As established above, the recipient (the Scholarship Holder) of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the Employer. Would an individual who received the benefit have been entitled to a once-only deduction for the expense had their employer (the Employer) not reimbursed them for the expense incurred? Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature or relate to the earning of exempt income. Taxation Ruling TR 2024/ 3 Income tax: deductibility of self-education expenses incurred by an individual (TR 2024/3) sets out the Commissioners view on the deductibility of self-education expenses. The words "in gaining or producing assessable income" are understood to mean "in the course of gaining or producing assessable income and not merely "in connection with" or "for the purpose of" deriving assessable income. Paragraph 16 states that it is not enough to show that there is some perceived connection, general link or casual connection between the expense and the production of income. There must be a close connection between the performance of the duties and activities through which your income is earned, and the expense. Paragraph 18 states that where your income earning activities are based on the exercise of a skill or having specific knowledge, the self-education expenses incurred to maintain or improve that knowledge or your ability to exercise those skills are deductible. To determine whether circumstances exist that support an individual's self-education deductions, it is necessary to determine whether there is a sufficient connection between the individual's incurring tuition costs and their current income earning activities. Whether such a connection exists is a question of fact and is to be determined by reference to all the facts of the case. As in AAT Case Z1 , for expenses to be deductible they must be incurred in gaining assessable income and must be incidental and appropriate to the office. The taxpayer must show that there was an explicit or implicit condition that the expenses be incurred. To satisfy that nexus between the college expenses and the gaining of assessable income, in other words to show that the expenses were in relation to an activity incidental and appropriate to the office, the applicant must show that there is an explicit or implicit condition of the office that the expenses be incurred. At all relevant times, the applicant was in the employ of the Employer of Consumer Affairs where qualifications as a solicitor were not necessary, although the gaining of such qualifications was encouraged. It seems to me that the course pursued by the applicant during the relevant financial year was of her own choice and for her own self-improvement. It could not be said to be "part and parcel" of her employment. It is not sufficient to say that the payment of the college expenses enhanced her ability to perform the duties of her employment. The authorities indicate that the nexus must be much more direct. In this case the scholarship recipient is required to: • successfully complete the required studies and training • accept appointment as a permanent full-time employee in one of the locations aligned with their Scholarship Agreement, upon completion of the required studies and training • remain in the permanent full-time employee position for a minimum period of 3 years It is clear that there is an explicit condition that the relevant course of self-education be undertaken, which is sufficient to satisfy the condition of deductibility in section 8-1 of the ITAA 1997. Therefore, the ODR can be applied to reduce the FBT liability on the payment of the individual's tuition costs under section 24 of the FBTAA where the fees were not in respect of a Commonwealth Supported Place. | Detailed Reasoning - Reduction of taxable value: Paragraph 24(1)(ba) of the FBTAA provides for the determination of the 'notional deduction' which is used to calculate the reduction of the taxable value under the ODR. Applying this provision, the notional deduction equals: • GD ('gross deduction') which is the amount of the expenses that an employee would be entitled to under section 8-1 of the ITAA 1997 if they incurred the expenses (in this case, being the entire amount of tuition fees paid in respect of years 3 and 4 which is the final 50% of the tuition costs), minus • RD which in the present case is nil as there is no recipient's portion in relation to the expense payment. The notional deduction is the amount to which the taxable value of the expense payment fringe benefit will be reduced pursuant to the formula that appears beneath paragraph 24(1)(f) to which paragraph (g) will apply. Under subparagraph 24(1)(e)(i) of the FBTAA, the requirement to provide a declaration does not apply where the expense payment fringe benefit is an 'exclusive employee expense payment benefit'. Under subsection 136(1) of the FBTAA, an 'exclusive employee expense payment benefit' means an expense payment fringe benefit where the recipient's expenditure is exclusively incurred in gaining or producing salary or wages of the recipient in respect of the employment to which the fringe benefit relates and is not expenditure in respect of interest. The expenses incurred in relation to the tuition costs are wholly work related. That is, the courses are undertaken exclusively in gaining or producing the individual's assessable income and therefore, an employee declaration is not required. Therefore, it is considered that the ODR would apply to reduce the taxable value of the expense payment fringe benefits for the Employer to nil under section 24 of the FBTAA where the fees were not in respect of a Commonwealth Supported Place.