Private ruling: Deductions
Date of advice: 25 January 2018
Published: June 2018
Ruling period: 01 July 2017 to 30 June 2020
Date scheme commenced: 01 July 2017

Ruling: Q1: Is a deduction allowed for the company for course fees incurred for an employee to do a Masters Degree? | A1: Yes, because payment of this expense is a fringe benefit, a deduction is allowed.

Relevant facts and circumstances: 1. The applicant is a company. The sole director of the company is X. 2. X is a medical professional. 3. Currently, approximately 95% of the income derived by the company is from clinical fees. The remaining 5% of fees is derived from sitting on medical boards, preparing research papers, and other minor consultancy work with pharmaceutical companies. 4. The company intends to make a significant shift in its sources of income by reducing the amount of clinical work performed, and increasing the income currently derived from other sources which are more managerial and consultancy-based. 5. To do this, X intends to apply for positions in hospitals for further consultancy work with pharmaceutical companies and to sit on more medical boards. 6. This stream of income is believed to be greatly enhanced if X obtains an MBA. 7. The course is specifically tailored for experienced executives to develop the skills and necessary capabilities to take up leadership roles, and enhances the company’s ability to move towards administrative and advisory work. 8. It is expected that the course will be completed in 18 months. 9. The company will pay the fees for X to obtain this qualification. Assumptions 10. X is an employee of the company.

Relevant legislative provisions: Income Tax Assessment Act 1997 (Cth) Section 6-5 | Income Tax Assessment Act 1997 (Cth) Section 8-1 | Fringe Benefits Tax Act 1986 (Cth) Section 6 | Fringe Benefits Tax Assessment Act 1986 (Cth) Section 20 | Fringe Benefits Tax Assessment Act 1986 (Cth) Subsection 136(1)

Reasons for decision: Summary: The course fees incurred by the company for X to do an MBA will constitute an expense payment benefit under section 20 of the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBTAA). Consequently, the company will be allowed a deduction under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) for both the expense, and any fringe benefits tax payable. | Detailed Reasoning - Detailed reasoning: Fringe Benefits Tax Subsection 136(1) of the FBTAA defines ‘expense payment benefit’ as a benefit referred to in section 20 of the FBTAA. Section 20 of the FBTAA provides that an expense payment benefit will occur where: (a) The provider makes a payment in discharge, in whole or in part, of an obligation of another person to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) The provider reimburses another person, in whole or in part, in respect of an amount of expenditure incurred by the recipient In summary, an expense payment fringe benefit will arise when an employer pays for or reimburses expenses incurred by an employee. In your case, the company intends to pay the MBA fees for X, the employee. If the company pays for the MBA directly by paying the school, the expense will constitute an expense payment benefit under subsection 20(a) of the FBTAA. If X pays for the MBA and is subsequently reimbursed by the company, the expense will constitute an expense payment benefit under subsection 20(b) of the FBTAA. The taxable value for expense payment fringe benefits is generally the amount you pay or reimburse. However, the taxable value may be reduced through the application of sections 23 and 24 of the FBTAA. | Detailed Reasoning - Deductions: Law Administration Practice Statement PS LA 2003/3 Precedential ATO View provides a schedule of documents containing precedential ATO views. One of these documents is Fringe benefits tax – a guide for employers. Section 1.2 of this document states that you may claim an income tax deduction for the cost of providing fringe benefits. Accordingly, the company will be allowed a deduction for the course fees. Furthermore, the company will also be allowed a deduction under section 8-1 for the amounts of fringe benefits tax incurred (see Taxation Ruling TR 95/24 Income tax: deductibility of fringe benefits tax and section 9.2 of Fringe benefits tax – a guide for employers). While TR 95/24 discusses deductibility under former subsection 51(1) of the Income Tax Assessment Act 1936 , subsection 51(1) has since been replaced by section 8-1 of the ITAA 1997, and the principles discussed in TR 95/24 remain applicable.