Edited version of private advice

Authorisation Number: 1051922543116

Date of advice: 16 November 2021

Ruling

Subject: FBT- practical legal training course fees

Question

Does the payment of the Practical Legal Training Course fees on behalf of an employee fall within the 'otherwise deductible' rule contained in section 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following period:

1 April 20XX - 31 March 20XX

Relevant facts and circumstances

You are a company that provides management and other services to professional sports people.

One of the directors of your company has been an employee since xxxx and remains employed by the company.

This employee completed a law degree while an employee of the company and subsequently undertook a Practical Legal Training course. Once completed, the Practical Legal Training course leads to the employee being awarded a Graduate Diploma of Legal Practice.

You paid the employee's Practical Legal Training course fees in full on their behalf on xxxx.

In the employee's current role in the company, they perform the following roles:

•         assists and advises sports people in relation to their playing contracts with both club and national teams;

•         assists players to negotiate contracts and draft the terms of their various contractual arrangements with sponsors and other commercial activities including broadcasting contracts; and,

•         provides legal advice for players including wills, power of attorney, non-disclosure agreements, conveyancing transactions when players buy or sell real estate and shareholder agreements where players take an equity interest in a sponsoring company.

The Practical Legal Training course focuses on skills such as contract drafting, negotiation, property transactions and client management. Completing the Practical Legal Training course will improve the employee's skills and knowledge in their current role as it focuses on how the legal knowledge that was obtained during the law degree can be applied in practice.

There is no intention for the employee to take on a different role as a lawyer in the company, but the completion of the Practical Legal Training Course will allow them to improve their ability to assist with contract negotiation and drafting and advising the clients of the company.

Completing the Practical Legal Training course will allow the employee to improve their skills and knowledge in their current role. This improved knowledge will almost certainly result in an increase in the employee's salary without changing the nature of their role.

You received a favourable Private Ruling on whether the payment of the employee's Practical Legal Training Course fees was an allowable business deduction to you.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 136 (1)

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 24

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Payment of the Practical Legal Training Course fees on behalf of an employee is considered to be a fringe benefit because it meets the definition of that term, which is contained in section 136(1) of the FBTAA.

The type of fringe benefit that is being provided is an expense payment fringe benefit because you made a payment in discharge of an obligation of another person (the employee) to pay an amount to a third person (the training course provider) in respect of expenditure incurred by the employee (section 20 of the FBTAA).

Section 24 of the FBTAA allows the taxable value of an expense payment fringe benefit to be reduced by the otherwise deductible rule, that is, the taxable value of the benefit can be reduced by any amount the employee would hypothetically be entitled to claim as an income tax deduction if the employer had not paid the third party or reimbursed the employee in satisfaction of the expense incurred by the employee.

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the general rules for claiming an income tax deduction and states that you can deduct any loss or outgoing that is incurred in gaining or producing your assessable income that isn't a loss or outgoing of capital, isn't private or domestic in nature, isn't incurred in relation to gaining or producing exempt or non-assessable non-exempt income and another provision of the tax law does not prevent deduction of the expense.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business contains the circumstances in which self-education expenses are allowable as an income tax deduction:

13. If a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

14. If the study of a subject of self-education objectively leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income-earning activities in the future, the self-education expenses are allowable as a deduction.

In your situation, the employee's income-earning activities are based on certain skills and knowledge that require an understanding of various legal terms and conditions which are outlined in contracts and draft contracts. Although there is no intention for the employee to take on a different role as a lawyer in the company, you expect completion of the Practical Legal Training course to improve the employee's ability to assist with contract negotiation and drafting and in providing advice to clients.

As the Practical Legal Training course focuses on skills such as contract drafting, negotiation, property transactions and client management and consistent with the outcome of the previous ruling (where it was found that the Practical Legal Training course expenses incurred by you are allowable as business deductions), we agree that the required nexus between the employee's income earning capacity and the self-education expenses is met. The completion of this particular course will enable the employee to maintain or improve their skills and knowledge in their current role and may lead to an increase in income from their current income-earning activities in the future and would have been an allowable deduction to the employee under section 8-1 of the ITAA 1997 if this expense was not paid by you.

Therefore, section 24 of the FBTAA allows you to reduce the taxable value of the Practical Legal Training course fees (being the fringe benefit which is being provided to your employee) by the amount that is otherwise deductible to your employee. As the amount that is otherwise deductible to your employee is the same amount as the Practical Legal Training course fees, the taxable value of the fringe benefit is effectively reduced to nil.

You are reminded that in order to reduce the taxable value of the expense payment fringe benefit, you are required to maintain supporting documentation for the required retention period to substantiate the expense under section 123 of the FBTAA, that is, retain the original receipt or other proof of purchase as evidence that you paid for the Practical Legal Training course fees on behalf of the employee.

An employee declaration is not required in this case because the expense is considered an "exclusive employee expense payment benefit" under section 136(1) of the FBTAA, that is, an expense payment benefit where the recipient's expenditure is exclusively incurred in gaining or producing salary or wages from the employment to which the benefit relates.