Proposed cuts to self-education expenses from RibaKasteel Chartered Accountants and Business Advisors.
There have been recent major changes to the amount of self-education expenses an employee can claim.
The former Federal Treasurer Wayne Swan issued a press release in April, 2013 stating that from 1 July 2014, self-education expense deductions would be capped at $2,000 per financial year. This date has now been pushed back to 1 July 2015.
According to Mr Swan, the aim was to target individuals’ claims for expenses such as first-class airfares, five-star accommodation, and expensive courses. In June, the Government released a Consultation paper providing further insight into how the new change may apply.
Under the existing law, a tax deduction can be claimed when the education activity is directly connected to your current employment by either improving or maintaining a skill or specific knowledge, or where it may lead to an increase in income from current work activities. The deduction is not allowed where the education is to gain new employment, or if it relates only in a general way, to the current employment or profession. Currently, these expenses can be related to formal education, from a university or TAFE, and informal education such as seminars and conferences.
The new proposal From 1 July 2015, individuals can only claim up to $2,000 for their education expenses each year. The current distinction between formal and other education expenses will not apply.
Expenses that count towards the $2,000 cap:
· Tuition fees
· Textbooks and professional trade journals
· Stationery and photocopying
· Computer expenses including deprecation
· Student union fees, student services and amenities fees
· Accommodation and meals after one or more nights away
· Home office expenses
· Travel between home to place of education and back, and from work to a place of education and back
· Registration fees for conferences, workshops or seminars
Expenses that are excluded from the cap:
· Professional memberships
· Overtime meal expenses
· Travel expenses
· Professional indemnity and income protection insurance
· Protective clothing and uniform expenses
The impact Employees The cap is designed to target individuals. Therefore, employees who pay their own self-education expenses such as lawyers, tax agents and doctors who undertake continuing professional development may be affected in terms of the limit of their deductions. Fortunately, for these professions, and other professionals, memberships of professional bodies such as the Australian Medical Association or the Institute of Chartered Accountants are not included in the cap.
Employers Currently, employers are not liable for Fringe Benefits Tax (FBT) for education and training they provide on behalf of their employees. The government has confirmed that they will retain the current treatment whereby employers are not liable for FBT unless an employee salary sacrifices to obtain these benefits.
Sole Traders Taxpayers that are self-employed may be disadvantaged as their expenses are subject to the $2,000 cap however, it does not apply to the education expenses they incur for their employees.
In conclusion Those that will be at an advantage under the proposed new law are employers as the payment of self-education expenses for an employee will not attract FBT. Conversely, employees and sole traders paying for their own education are disadvantaged by the $2,000 cap, which creates an uneven playing field.