Revised tax deduction for education and training costs
On 1 January 2016, the Federal Act on the Tax Treatment of Professional Education and Training Costs will come into force, with new provisions for the Federal Act on Direct Federal Taxation (DBG) and the Tax Harmonization Act (StHG). This introduces a basic deductibility of all professional training and further education costs.
Until now, current tax practice has regarded further training costs as tax-deductible profit costs for generating income, while training costs were regarded as non-tax-deductible living expenses. Further training costs in this sense were mainly considered to be further training and retraining costs that were directly related to the current profession and which the taxpayer could not do without. In the case of retraining costs, this meant that the taxable person had to be forced to undertake this training due to external circumstances (e.g. company closure, illness, accident, etc.). Non-tax-deductible training costs included initial training on the one hand and the costs of voluntary retraining and career advancement costs that were not related to the current profession on the other. Controversial delimitation issues have repeatedly led to legal disputes in the past.
The new legal provisions do not differentiate between further education and training costs, but instead redefine "professional orientation" as the criterion for deciding between deductible and non-deductible education costs. The costs of a completed training course are deemed to be "job-related" if the knowledge imparted could serve current or future professional activities (according to the dispatch on the Federal Act; BBI 2011, p. 2624). It does not matter whether this applies to self-employed or employed work or is directly related to current earned income. The dispatch gives the example of a baker who is training to become a diving instructor. The new law entitles him to deduct these training costs, as the diving instructor training theoretically enables him to earn his own living (possibility of 100% employment to achieve financial independence), regardless of whether the baker ever intends to work as a diving instructor or not.
Furthermore, educational courses that serve as a hobby or for self-development are not tax-deductible, as they are not professionally oriented, i.e. they do not lead to a professional qualification.
Article 33 para. 1 let. J of the Federal Law on Direct Federal Tax limits the deduction of work-related education and training costs to CHF 12,000 per tax period. Furthermore, only those who have a first upper secondary level qualification (baccalaureate school, technical secondary school or vocational training) or have reached the age of 20 are entitled to a deduction if their costs do not relate to education costs up to the first upper secondary level qualification.
While under the current tax practice, training costs paid by the employer (non-tax-deductible living expenses) were treated as benefits in kind (taxable income for the employee), from January 1, 2016, work-related training, further education and retraining costs borne by the employer will be permitted as business-related expenses without restriction (Art. 17 para. 1bis in conjunction with Art. 59 para. 1 let. e DBG).
It should be noted that the payment is made directly by the employer to the external training institute and the invoice is addressed to the employer. If the invoice is addressed to the employee or if the training course was paid for by the employee in conjunction with compensation from the employer, the amount paid must be recorded in the salary statement under point 13.3 (see margin no. 61 of the new instructions for completing the salary statement dated May 12, 2015). This is intended to prevent possible abuse by employees who could claim costs in their private tax return that have already been paid by the employer.
The new provisions on direct federal tax have also found their way into the Tax Harmonization Act and will therefore be uniform for the Confederation and cantons in future. The cantons are obliged to adapt their legislation to the date on which the amendments to the federal law come into force (January 1, 2016). They are free to define their own maximum amounts for education and training deductions per tax period. It can be assumed that most cantons will follow the federal limit of CHF 12,000. Deviating from this, the canton of Basel-Stadt decided on a limit of CHF 18,000 on September 16, 2015. The canton of Baselland, on the other hand, has adopted the federal limit of CHF 12,000.