The recruitment of employees is usually not a straightforward business. It can take a lot of time and can have a fair amount of cost associated with it. Consequently, it’s important that costs are kept under control and reduced where possible, although not by cutting corners in the recruitment process since this will adversely affect the outcome. Fortunately, however, all costs associated with recruitment can be offset against a company’s taxable profit and will, therefore, reduce its tax bill.
The Rules for Claiming Business Expenses
Under Australia’s tax laws, any expense that is incurred in the conduct of a company’s business is tax deductible. In other words, it can be charged in the company’s accounts as a valid business expense and will reduce its taxable profit and therefore, the amount of tax it has to pay.
The Australian Tax Office cannot specify what you should and should not spend in a business although it can set allowable limits on certain items, such as the permitted cost of a company car. In these cases, any amount spent above that limit cannot be used to reduce the tax payable.
There are no limits imposed for recruitment costs although, as with any other business expense, there are rules governing any claims:
- all tax-deductible expenses must relate directly to the business and the way it earns its income; you can’t, therefore, claim for the recruitment of a domestic servant
- if there is any element of private use, only the portion that relates to the business can be charged as tax-deductible
- there must be a record to substantiate the claim and state what it is; this will generally be an invoice, sales receipt or some other legitimate document.
Capital expenses normally have to be spread over the life of an asset or some other specified period while operating expenses, which include recruitment costs, can be claimed in the period they are incurred. An invoice does not have to be paid for the cost to be tax-deductible but the cost does have to be incurred in the period of the claim. For a long recruitment process that spreads over two financial years, for example, the cost will need to be apportioned to each period.
Reducing the Cost through Less Tax
Although each business is different and particular circumstances may dictate what can be claimed; recruitment costs are always tax-deductible providing you are taking on new employees for your business. As a consequence, the amount you pay for recruitment services is reduced by the relevant rate of tax.
In effect, the cost of recruitment includes:
- agency fees that can be charged as business expenses
- advertisements, whether in printed newspapers or magazines, on job boards or social media sites; these costs include the preparation and publication of the advertisements
- management, administrative and overhead costs associated with the recruitment; these will be charged as normal operating costs in the usual way
- overtime and other expenses that have been incurred due to posts remaining unfilled, which will also be charged as operating costs.
Although recruitment is not a simple or cheap process, the fact that costs are tax-deductible does reduce the overall impact. Additionally, recruitment is an investment in the future success of the business since it introduces new resources who will add to the company’s capabilities and increase its profitability.
Using Schward Recruit, you’re getting a service that will identify and provide the right candidates to fill your vacancies and drive your company forward. Added to that is a cost-effective service that, combined with the expense being tax-deductible, means you’re really getting excellent value.
Dr Schultz spent 22 years working in psychiatry and then went on to qualify as a lawyer. He has spent 34 years helping people solve problems and the unique combination of medicine, psychiatry, law and mediation provides a unique academic and practical approach to life's challenges.
