Private ruling: Deductibility of personal development program
Published: January 2014

Ruling: A1: Year ending 30 June 2014 Year ending 30 June 2015 Year ending 30 June 2016 Year ending 30 June 2017 01 July 2013

Relevant facts and circumstances: The Company specialises in the provision of financial needs, including: tax and accounting; risk insurance; financial planning; and finance. The Company wishes to pay for the cost of an ongoing staff personal development program (the program), which will be provided to all employees at management level and below. These staff include accountants, financial planners and administrative staff. Literature was provided with various health experts and business professionals explaining the benefits of the program and its correlation with improved mental health and work performance. Published articles were also provided. The Company wishes to know if the course expenses that it will incur are deductible under section 8-1 of the Income Tax Assessment Act 1997 .

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 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in carrying on a business for the purpose of 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 the Company's case it is planning to bear the cost of an ongoing staff personal development program (the program), which will be provided to employees. It is intended that the program will improve employee wellbeing and enhance productivity. The courts have generally found that costs connected to the ever recurring question of personnel are on revenue account. In other words, expenses incurred for the benefit of employees are considered business expenses. In the United Kingdom payments by an employer to establish a fund for the benefit of employees have generally been held to be payments on revenue account. In explaining his approach to that issue Lord Denning MR, in Heather v P-E Consulting Group Ltd. [1973] Ch 189 at 217 ( Heather ), referred to Viscount Cave in Atherton and stated: It seems to me that the purpose of these payments was to provide an incentive for the staff, to make them more contented and ready to remain in the service of the taxpayer company, and also to help in the recruitment of new staff. Buckley LJ discussed Atherton at 222: ... in the present case the objects of this scheme were to enable this taxpayer company's business to be carried on more efficiently. They were directed to improving and maintaining the trading potential of the taxpayer company and facilitating its trading to advantage. As with these findings, it is accepted that the Company is bearing the costs of the program in order to make the employees "more contented and ready to remain in the service of the taxpayer company" and are "directed to improving and maintaining the trading potential of the taxpayer company and facilitating its trading to advantage." Consequently it is considered that the cost of the program to the Company is not a capital, private or domestic expense. It is incurred for a specific business purpose and is therefore deductible under section 8-1 of the ITAA 1997. It should be noted that the nexus between the program and an individual employee's income-earning activity is not required to be scrutinised as it would have been had the employee paid for the cost of the program and wished to claim a deduction for the expense. In short, the cost to the Company for sending its employees on a transcendental meditation course is a deductible expense under section 8-1 of the ITAA 1997.

Is the Company entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 for bearing the cost of a personal development program for employees?