NB this does not constitute HR, legal or accounting advice and is developed from many conversations with these professionals. It is important to seek your own independent advice before actioning any information laid out in this article.
If you’re running a private psychology practice in Australia, offering training and supervision is a big part of how you support your team—whether they’re employees or independent contractors. Not only is it essential for ensuring quality care, but it also helps build a skilled and engaged workforce.
But here’s where it gets tricky: Fringe Benefits Tax (FBT). It’s a term that might make your eyes glaze over, but understanding it could save you from unexpected tax bills. Whether your team members are employees or independent contractors, FBT plays a different role in how you handle their professional development. Let’s break it down so you know exactly what to watch for.
FBT is a tax employers pay on certain benefits they provide to their employees (or their employees’ associates) in addition to salary or wages.Generally speaking, training and professional development expenses covered by an employee are considered to be fringe benefits.
The true burden of FBT and the administrative costs are often underestimated by employers. As a general rule the FBT payable on any benefit is roughly the same as the benefit itself e.g. a benefit provided of $2,000 will incur FBT payable of around $2,000. There is also the cost of having your accountant prepare and file the return to consider.
The good news? There are lots of exemptions and strategies to minimise or avoid it altogether. The rules are different for employees and contractors, though, so let’s look at both.
When it comes to employees, you need to ask: is this training directly related to their current job? Training that is necessary for an employee to complete their job, helps them to do their job better, or provides advancement within their field can qualify for the otherwise deductible exemption. That is, if the expense were to be incurred directly by the employee, would they be allowed a deduction against their income for that expense. For an expense to be an allowable deduction it needs to be closely related to an individual's income earning activity. Let's have a look at some types of training and their likely FBT outcome. .
- Non-Work-Related Training
Training that helps employees develop skills not directly tied to their current role —like a leadership course or unrelated personal development training—could attract FBT. For e.g. if you run a child only practice then a course on DBT for adults may attract FBT, whereas training on engaging young people in treatment may not.
- Work-Related Training
Training that helps your employee do their job better—like a course specific to the client group your organisation serves or compliance training—is generally exempt. This is because it’s directly tied to their role in your practice.
- Supervision Requirements for Provisional Psychologists
Providing supervision for provisional psychologists to meet registration requirements is often considered a business necessity. However, there are nuances:
- If the supervision is mandatory for the role, it may not attract FBT.
- If it's deemed to be for the employee’s personal career advancement outside their current role, FBT may apply.
- Registrar Endorsement Programs
Similar to provisional psychologists, registrar supervision and CPD may or may not attract FBT depending whether it is mandatory for the role or for the employee’s career advancement. We recommend getting independent advice about how this would apply in your workplace.
- Minor Benefits Exemption
If the training is a one-off and costs less than $300 (GST-inclusive) per employee per year, you may be able to claim a minor benefits exemption.
- Professional Development for Registration
Any training required for maintaining professional registration or accreditation (e.g., CPD for psychologists) is usually exempt.
As you can see whether training and supervision is likely to attract FBT is nuanced, so get independent advice and read on for tips on how to avoid or minimise the impacts.
Here’s the big difference: FBT doesn’t apply to independent contractors. Yep, you read that right. FBT is all about employer-employee relationships, so benefits provided to contractors are outside its scope.
That doesn’t mean it’s a free-for-all, though. You still need to think carefully about how you structure professional development for your contractors.
- No FBT, But There May Be Other Tax Implications
If you pay for a contractor’s training or supervision, they may need to declare this as income on their personal tax return. It’s worth having a conversation about this upfront to avoid surprises.
- Keep It Clear in the Contract
Spell out in the contractor agreement whether you’re providing (or covering the cost of) training and supervision. If you do, make it clear that this is tied to their ability to deliver services for your practice, not just a personal perk.
- Pass-Through Costs
You can organise training or supervision for your contractors but pass the cost directly to them. This keeps things simple and avoids any potential tax complications.
- Let Them Take the Lead
Another option is to leave training and supervision entirely up to the contractor, with your role limited to offering recommendations or approved providers.
The line between employee and contractor can sometimes blur, particularly in professional service industries like psychology. Missteps in classification or benefit provision can lead to tax complications. If you’re unsure about the implications of training or supervision for your contractors, consult with:
- A tax advisor experienced in healthcare and psychology practices.
- A legal professional to ensure your contractor agreements are robust and compliant.
Whether you’re dealing with employees or contractors, a little planning goes a long way.
- Document Everything
- Keep clear records showing how training or supervision supports their current role. This is crucial for FBT exemptions and helps if you’re ever audited.
- Leverage Exemptions
- Use the work-related training or minor benefits exemptions wherever possible.
- Get Professional Advice
- Tax rules can be tricky, and the ATO doesn’t mess around. A good accountant or tax advisor who understands healthcare practices can help you navigate the details.
1. Reduced Fringe Benefits Tax (FBT) Exposure
If you outsource supervision or CPD to an external provider, the payments made for work-related training are still likely to be exempt from FBT, provided they meet the criteria for work-related training (i.e., directly related to their current job).
2. Tax Deductibility for the Practice
Payments for outsourced training or supervision are usually fully tax-deductible as a business expense if they directly relate to the operation of your practice.
If you provide these services in-house, the costs associated with employing or contracting supervisors/trainers, materials, and facility use are also deductible. However, outsourcing can often simplify the accounting process because the costs are bundled into an invoice from the external provider.
3. Administrative Simplicity
Organising supervision and CPD in-house often requires additional resources, such as hiring or allocating time for senior staff, managing scheduling, and purchasing or preparing training materials. Outsourcing shifts this burden to an external provider, which may save time and streamline your expenses.
4. Flexibility and Scalability
Outsourcing allows you to pay only for the training and supervision you need, without committing to hiring or dedicating in-house resources. This can be particularly cost-effective for smaller practices or those with fluctuating needs.
Providing training and supervision is vital for building a thriving psychology practice, but don’t let tax considerations catch you off guard. For employees, understand the exemptions and when FBT might apply. For contractors, focus on clear agreements and ensure everyone’s on the same page about costs and tax implications. Outsourcing will make any FBT accounting far simpler and therefore make it more likely that you will fully utilise the tax deductions available.
By staying informed and keeping things clear and compliant, you can support your team’s growth without unnecessary tax headaches—and keep your focus where it belongs: on helping your clients thrive.
