Edited version of private advice

Authorisation Number: 1052127222344

Date of advice: 7 June 2023

Ruling

Subject: Deduction for the repayment of the cost of training

Question

Are you entitled to claim a deduction for the repayment of the cost of training provided by your former employer?

Answer

No.

This private ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You worked for a company as a full-time employee.

The first months of work was paid full-time training.

The cost of the training was $X. The company paid for it. You were paid your normal salary during the training period.

The only condition of employment was you had to do the training then work for another X years with one of their clients. While doing the training you were paid like any other employee and your salary continued after the training finished.

You worked for the company for X months then resigned.

As you had not completed the full training period, you were required to pay back $X. This amount was reduced from a total training fee amount of $X because you completed X months of work with them.

$X was paid back.

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 P20 (1963) 14 TBRD 97. 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 reimburses 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 training expenses to your former employer because 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.

As your liability to repay $X was neither incidental nor relevant to the production of your assessable income as an employee, you are not entitled to claim a deduction for the amount you are required to repay to your former employer.