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Edited version of your written advice
Authorisation Number: 1051270143860
Date of advice: 18 August 2017
Ruling
Subject: Repaid self-education
Question
Are you entitled to claim a deduction for the repayment of a training/development bond provided by your employer?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Year ended 30 June 2019
Year ended 30 June 2020
The scheme commenced on
1 July 2015
Relevant facts
You were employed as a fully qualified #.
As a part of your employment contract, your employer provided for your self-education expenses to the amount of $X on the condition that you remain employed with them for # months. If you did not remain employed with them, you would be required to repay the expenses.
Your employer provided the training.
The $X was the value of the training and was not a payment made to you.
You resigned from your employer with a total service period of # months and your employer required that you repay the expenses.
Your employer issued you with a tax invoice for $Y due to the fact that you did not complete # months of service with them.
An amount of $Y was deducted from your final salary leaving you with a debt of $Z to be repaid in instalments.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
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 self-education expenses to your employer as a result of the early termination of an agreement you held with them.
Although the repayment you made indirectly relates to your training, 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.
As your liability to repay this amount was neither incidental nor relevant to the production of your assessable income as a XXX, you are not entitled to claim a deduction for the amount you have to repay to your employer.
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