Are Training Expenditure Tax Deductible?

TAX DEDUCTIBILITY OF TRAININGEXPENDITUREHWHSHARISON SAMARATUNGACTA, ATII, MAAT, B. Sc. (B. Ad) Sp, HNDC

Chartered Tax Advisor andAuthorized Representative

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Definition of Training Expenditure.Allowable Training Expenditure.Disallowable Training Expenditure.Capital vs Revenue in Training.Self-Employment Training.CONTENTSHWHS

Training costs are tax deductible if these expenses meet the criteria defined by Sri Lanka Inland Revenue Act No. 10 of 2006 (as amended).

The section 25 (1) (q) will be applied in respect of training expenditure to determine whether the particular expenses within the scope of the act.

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WHAT DOES INLAND REVENUE ACT SAY?HWHS

QUOTATIONExpenditure incurred by any person in the training, in any recognized institution of any employee employed by such person in any trade or business carried on by such person, if it is proved to the satisfaction of the Commissioner General that such training is-

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Directly relevant to the duties performed by such employee before the commencement of such training;Essential for upgrading the skills or performance of such employee, in such trade or business;Necessary for improving the efficiency and performance of such trade or business;

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For the purpose of this paragraph-

Training includes participation in any seminar or workshop;

Employee includes any partner of any partnership carrying on a profession.

- End of Quotation -HWHS

DEDUCTIBALE TRAINING EXPENSESThe most of employers and employees think that training costs aimed at improvingskills will be automatically qualified for tax relief. But availability of tax relief depends on answers which receive for the following questions.Was the expenditure incurred in the production of income?Was the expenditure Capital or Revenue in nature?HWHS

IN THE PRODUCTION OF INCOMEIf an employee requires a training to carry out their job then tax relief will be given.

The training expenditure should be incurred in workshops, seminars or courses that allow individuals to improve and develop their job-related skills, especially if the employees require the training to remain in their roles.

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Accordingly, the tax deductible training courses must allow an employee to sustain or develop in his current job, which includes learning about new technology, getting updates on new regulations or developing professional skills such as;Time Management.Decision Making.Communication.Negotiation.HWHS

EXAMPLES FOR ALLOWABL EXPENSESAcademic fees.Ex. Tuition and lecture fees2. General supplies.Ex. Notebooks, pads, binders, papers, folders, index cards, writing utensils.Laboratory and library fees.Cost of uniforms.Travelling expenses.Hotel and meal expenses.

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CAPITAL VS REVENUE

CAPITAL NATURE

Capital expenditure is expenditure that creates an Enduring Asset that can be used in the business.

Tax authorities take the view that where the training provides new expertise, knowledge or skills, the cost of that training is capital in nature, and thus cannot be claimed as an expense. HWHS

In other words, capital expenditure where a training or educational course results in a lasting benefit to the taxpayer, the costs incurred in connection with the course are considered to be capital in nature.The deduction for these expenses is disallowed because a lasting benefit to the taxpayer is considered to occur where a new skill or qualification for a business is acquired.HWHS

EXAMPLES FOR CAPITAL NATUREA situation where the result of the training course is to produce a recognized qualification.The acquisition of know-how to develop new product.A medical general practitioner is training to qualify as a specialist.A lawyer is taking an engineering course that is unrelated to his or her legal practice.A professor employed by a university takes a course during a sabbatical in order to acquire a new skill needed for a sideline business.

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REVENUE NATURE

If a taxpayer takes a training course merely to maintain, update or upgrade an already existing skill or qualification with respect to his or her business or profession, expenses incurred in connection with such a course are not considered to be capital in nature and the deduction for such expenses is allowable.

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EXAMPLES FOR REVENUE NATUREA professional development course is taken as required or recommended by a professional body to maintain professional standards.A tax course is taken by a lawyer or accountant who is qualified to do tax work, whether or not he or she has previously been actively involved in such work.A course on modern building materials is taken by an architect.

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CONCLUSION OF CAPITAL AND REVENUE

If the training is capital in nature, it is not tax deductible.

If the training is revenue in nature, it is tax deductible as a training expense.

The cost is a capital item and tax relief should be claimed by way of depreciation allowances.

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SELF EMPLOYMENT

For the self-employed, the criteria for determining if training expenses are allowable are somewhat different.

Here, training expenses will be deductible for tax purposes if they are incurred in the production of income of the trade, business, profession or vocation which is a much more liberal definition than that which applies for employees.

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IMPORTANTSome contents of this presentation are intended for general information purposes only and shall not be deemed to be legal advice.HWHS

We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

Sir Winston Churchill

The taxpayer thats someone who works for the Federal Government but doesnt have to take the Civil Service Examination Ronald Reagan

ABOUT TAXHWHS

THANKING YOU FOR WARCHINGHARISON SAMARATUNGACTA, ATII, MAAT, B. Sc. (B. Ad) Sp, HNDC

Chartered Tax Advisor AndAuthorized Representative20th November 2015HWHS

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