Yes, for most businesses. If you run a business in Australia and pay a recruitment agency to find staff, the fee is generally a deductible operating expense, as long as it relates to earning your assessable income and you hold the paperwork. Job seekers are in a different position: the ATO does not allow a deduction for upfront agency costs incurred to get a job. This guide covers both sides, plus GST, timing, records and the situations where a deduction is questioned. It is general information, not tax advice. For your own return or BAS, confirm the treatment with your registered tax agent or accountant.
TL;DR
- Businesses can generally claim a deduction for most expenses incurred in carrying on the business that directly relate to earning assessable income, and agency fees for hiring staff normally fit that test.
- If you are registered for GST, claim the GST credit on your BAS and deduct the fee net of GST. You need a valid tax invoice.
- Job seekers cannot claim upfront costs of using a recruitment agency to get work, because the cost comes before the income starts.
- Keep the agreement, tax invoice and proof of payment. Fees paid to associated entities, or to recruit for building a capital asset, need extra care.
Table of Contents
- The rule for employers: an operating expense
- GST: two separate claims, not one
- When the deduction is spread or questioned
- Records that protect your claim
- Job seekers: a different answer
- Our perspective on fees and deductibility
- What a fixed-fee structure looks like on your books
- Planning a hire with a known cost
- A short checklist before you claim
- FAQ
- Sources
The rule for employers: an operating expense
The ATO’s starting point for businesses is simple. You can claim a tax deduction for most expenses you incur in carrying on your business if they are directly related to earning your assessable income. Three conditions sit underneath that:
- The expense was incurred in the course of running the business.
- It is not private or domestic in nature.
- You can substantiate it with records, such as an invoice or receipt.
Finding and engaging staff is an ordinary part of running a business. A recruitment fee paid to fill a sales, administration, finance, engineering or healthcare role is therefore treated as a revenue (operating) cost, not a purchase of something you keep. Operating expenses are generally deductible in the year you pay for them or become liable for them.
The fee structure does not change this. Whether an agency charges a percentage of salary or a fixed fee, the question the ATO asks is what the expense was for, not how it was calculated.
What counts as part of the recruitment cost
In practice, these items on a recruitment invoice are normally treated the same way as the placement fee itself:
- Engagement or upfront fees for starting a search
- Placement or success fees when a candidate accepts
- Advertising and job-board costs the agency passes on
- Candidate checks you commission for the role, such as a criminal check or psychometric assessment
- A replacement search if the first hire does not work out
If an invoice bundles something unrelated to the hire, split it and claim only the business portion. Where an expense has mixed business and private use, the claim must be reduced to the business-only part.
GST: two separate claims, not one
Most Australian recruitment invoices include 10% GST. The treatment depends on whether you are registered for GST.
| Your situation | Income tax deduction | GST credit |
|---|---|---|
| Registered for GST, fee is for the business | Deduct the fee excluding GST | Claim the GST credit on your BAS, with a valid tax invoice |
| Not registered for GST | Deduct the full amount paid, GST included | No credit available |
| Fee partly private or non-business | Deduct the business portion only | Credit for the business portion only |
The point that catches people out is double counting. You cannot deduct the full amount including GST and also claim the GST credit. The credit comes back through your BAS, so the deduction is on the net cost. The ATO sets out the rules on deductions and GST for business expenses on its business deductions page. Your accountant or bookkeeper will normally code this automatically once the invoice is entered correctly.
A worked example
Say a GST-registered business pays a placement fee of $5,000 plus $500 GST, a total of $5,500. The business claims $500 as a GST credit on its BAS and includes $5,000 as a deduction in its income tax return. If the business is not registered for GST, the deduction is the full $5,500 and there is no credit. The figures are illustrative only, not a quote.
When the deduction is spread or questioned
Most recruitment fees are straightforward. A few situations deserve a conversation with your accountant first.
Prepaid fees that cross financial years
If you pay an engagement fee in June for a service that runs into the next financial year, timing matters. The ATO says prepaid expenses of $1,000 or more for a period that crosses into a later income year must generally be apportioned across the service period, rather than deducted all at once. Eligible small businesses have concessions that can change this, which is why your accountant should confirm which rules apply to you. A search that begins and completes within a few months will rarely raise the issue, but a payment made on 30 June for work in the following year might.
Recruiting to build a capital asset
The ATO treats most wages as deductible, but costs may be capital in nature if staff are hired specifically to construct or create a long-term asset. A construction firm hiring a site manager for its ongoing projects is in ordinary territory. A business hiring a team solely to build its own premises or a major software asset should ask its accountant whether the cost is capitalised.
Fees paid to associated entities
Some owners route staffing through a related service company. In that case the ATO looks closely at whether the fees are genuine and commercially justified. Its guidance on service entity arrangements says fees that are grossly excessive, or lack a reasonable connection to the business, can be disallowed. It also publishes indicative service fee benchmarks, including a net mark-up figure for recruitment activities. This applies to related-party arrangements, not to a normal invoice from an independent agency.
Loss-making businesses
A deduction can still be claimed if your business is making a loss. The loss is then handled under separate rules. Individuals can generally carry a tax loss forward indefinitely, but it must be applied at the first opportunity, and non-commercial loss rules can limit how a business loss offsets other income such as wages.
Records that protect your claim
A deduction you cannot prove is a deduction at risk. For each recruitment engagement, keep:
- The signed agreement or terms, showing what the fee covers
- Each tax invoice, with the supplier’s ABN and the GST amount
- Proof of payment, such as a bank statement line
- The job description or advertisement showing the role was for your business
- Any correspondence on a replacement or refund
The ATO’s three conditions for work-related claims (spent the money, linked to income, and held a record) apply across the system. Store these files with your other business records, and consider a bookkeeping tool that attaches the invoice to each transaction. Reviews of accounting software for recruitment agencies show how that kind of workflow looks on the agency side, which is useful when you want your own records to match theirs.
Job seekers: a different answer
The question also comes from individuals, so it is worth being clear. The ATO states that you can’t claim a deduction for the upfront costs of joining or using an employment or recruitment agency to get work, because the expense is incurred before you start earning income from the employment. This is set out on its agency fees page for individuals. Costs of renegotiating, reviewing or extending an existing employment contract are different, and can be deductible because they relate to earning that income.
Two related points come up often:
- There is no automatic flat deduction. The ATO’s guidance says work-related deductions must be actual expenses that you personally incurred, relate to income and can be substantiated. Treat any headline about a standard deduction with care and check it against ATO instructions for the relevant year.
- Reputable employer-paid recruitment is free to candidates. At The Recruitment Alternative, job seekers do not pay for placement or services, so there is no fee to deduct in the first place.
Our perspective on fees and deductibility
We work with small and mid-sized employers across Australia and New Zealand, and the deductibility question usually arrives from owners who are weighing up whether to use an agency at all. Our view is that the tax treatment should be the least of your worries: a genuine recruitment fee is a normal business cost, and the real decision is how much you spend to get a good hire.
That is where fee structure matters. Under a percentage model, the fee grows with the salary, so a $120,000 hire costs far more than a $70,000 one for the same search work. A fixed fee makes the cost known before you start, which also makes budgeting, cash flow and BAS planning easier. Our claim is a saving of over 70% against traditional commission-based agencies, and the model is built so that you see the figure upfront.
We also encourage employers to look at the whole cost of a hire, not only the invoice: the time spent screening, the cost of a vacancy that stays open, and the cost of a hire who leaves early. That is why we offer replacement cover within the first two to three months. Keep every invoice and agreement, ask your accountant to code the fee properly, and treat the deduction as a bonus on a sensible spend.
— Josh Townsend
What a fixed-fee structure looks like on your books
Predictable fees are easier to record. Our published structure, read from our site, has two tiers, each paid in two stages:
| Service | Engagement fee | Placement fee |
|---|---|---|
| Recruit | $895 | $3,900 to $5,000 |
| Recruit+ | $2,495 | $5,000 to $6,000 |
Optional extras are a criminal check at $129 and a psychometric evaluation at $199 per candidate. A replacement campaign, if a hire does not work out, is $1,000. The placement fee depends on the candidate’s salary. Each of these is a separate line you can match to an invoice. You can see the detail on our flat-fee pricing page, and our guide to placement fee payment terms explains how payments can be structured, which is useful when you plan around the end of the financial year.
For a wider comparison of cost models, read permanent placement fees for Australian employers, and our overview of how recruitment agencies work covers what is normally included in a fee.
Planning a hire with a known cost
If you are hiring this financial year and want a fee you can budget and deduct with confidence, our fixed fee recruitment service is built for it. Fixed Fee Recruitment is listed at $4,795 one-off, and the full Recruit and Recruit+ structure is on our pricing page. Small businesses can also see how we work on our small business recruitment page.
A short checklist before you claim
- Confirm the fee was for a role in your business, not a private or unrelated purpose.
- Check that the invoice is a valid tax invoice if you are registered for GST.
- Separate the GST credit from the deduction.
- Check the date: does any prepaid portion run into the next financial year?
- Note any related-party element or capital project and raise it with your accountant.
- File the agreement, invoice and payment proof together.
FAQ
Can a sole trader claim recruitment agency fees?
Yes, if the fee is incurred in running the business and relates to earning its income. The same conditions apply as for companies: a business purpose, a record, and no private element. Claim the business portion only if the cost is mixed.
Can I claim the GST on a recruitment fee as well as the fee itself?
If you are registered for GST, you claim the GST as a credit on your BAS and deduct the fee excluding GST. You cannot claim the GST twice. You need a valid tax invoice to support the credit.
Is a replacement or guarantee fee deductible too?
A fee for a replacement search is generally treated the same as the original recruitment cost, because it is incurred to staff your business. Keep the invoice and the agreement that explains why the replacement was needed. Our replacement campaign is $1,000, and details are on our candidate replacement page.
Can I deduct recruitment fees if I am looking for a job myself?
No. The ATO does not allow a deduction for upfront costs of using an agency to get work, because they are incurred before the employment income begins. Costs of renegotiating an existing contract can be an exception.
Do I need an accountant to claim this?
Not always, but it helps when GST, prepayments across financial years or related-party arrangements are involved. A registered tax agent can confirm the treatment for your structure, and the ATO’s pages are the authority on the rules.
Sources
- Business deductions, ATO
- Deductions for other operating expenses, ATO
- Deductions for salaries, wages and super contributions, ATO
- Service entity arrangements introduction, ATO
- Comparable and indicative service fees, ATO
- How to claim a tax loss, ATO
- Agency fees, commissions and wages you pay, ATO
- Claiming deductions, MyTax 2026 instructions, ATO
