Private ruling: Training expenditure
Published: January 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction where, under a contractual arrangement, you have had to reimburse an amount for training provided to you by your employer? | A1: No.

Relevant facts and circumstances: You received training provided by your employer. You had a written agreement with your employer in the form of a training bond. This agreement included reimbursement arrangements requiring you to repay your employer for the training costs on a sliding scale if you left the employer within a certain period of time from the date of completion of the training. The agreement stated an amount for the training course fees. You left the company within the bonded period, and the employer withheld all your entitlements as part of the required reimbursement, and requested you to repay the remainder of the fees as soon as possible. You requested a copy of the invoice or a statement showing that they had paid for the training as you intended to make a claim for the expenses in your tax return. No invoice has been provided.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 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. In cases where money has been repaid by a taxpayer to a former employer for breaching the employment contract, the Board of Review have held that such monies are not allowable deductions: Case J20 (1958) 9 TBRD 109, Case J60 (1958) 9 TBRD 308, Case P20 (1963) 14 TBRD 97 and Case G80 75 ATC 564. It was confirmed that the liability to make the payment arose from the breach of the agreement, and was not incidental to the gaining or producing of assessable income. In Case P20 (1963) 14 TBRD 97 a surveyor had entered into a bond with his employer prior to receiving his professional qualification. The bond provided that he reimburse his employer the employer's cost of his training should he resign his employment within 5 years of receiving his qualification. The taxpayer resigned 4 months after receiving his qualification and was required to repay the costs. The Board of Review stated: The expenditure in question flowed directly from the taxpayer's breach of covenant. It was a consequence of the taxpayer's termination of his employment with the department in order to take up duties with a new employer, and even though an increased salary flowed from this move, in no sense can it be said that the outgoing in question was incurred in the course of gaining or producing assessable income from the new source. It was not truly incidental or relevant to the actual derivation of salary income. In your case, you were required to repay an amount to your previous employer as a result of the early termination of an agreement you held with the employer. Although the repayment you made relates to your workplace training received, the reason for making the payment is in consequence of breaching the terms of your employment agreement. Therefore, the expenditure cannot be said to have been incurred as a self education expense and proof of payment for the training from your employer will not alter the nature or eligibility of your expenditure. As your liability to repay this amount was neither incidental nor relevant to the production of your assessable income, you are not entitled to claim a deduction for the amount you repaid to your previous employer.

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