ATO Interpretative Decision
ATO ID 2003/169
Income Tax
Self-Education Expenses: assessable scholarship incomeFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer, a student receiving only assessable scholarship income, entitled to a deduction for self-education expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The taxpayer, a student receiving only assessable scholarship income, is not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.
Facts
The taxpayer was enrolled full time at an Australian university and was in receipt of an assisted student scholarship.
The taxpayer's studies were relevant to a particular profession.
The scholarship was paid on condition that the taxpayer would take up employment with the scholarship provider for a certain period of time after completion of their studies.
The taxpayer was not currently employed by the scholarship provider and earned no other income.
Payments made under the scholarship were assessable under subsection 6-5(1) of the ITAA 1997 as they were income according to ordinary concepts (ordinary income).
Payments made under the scholarship were excluded from the exemption for scholarship income in section 51-10 of the ITAA 1997 as the payments were made on the condition that the taxpayer would become an employee of, or enter into a labour contract with, the scholarship provider (paragraphs 51-35(c) and 51-35(d) of the ITAA 1997).
The taxpayer incurred self education expenses, including college residential fees, while they were studying and were in receipt of the scholarship income.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
Taxation Ruling TR 98/9 sets out the Commissioner's views on the circumstances in which self-education expenses are allowable as deductions. In general terms self education expenses are deductible where they have a relevant connection with the taxpayer's current income earning activities.
A deduction will not however be allowable if the study was to enable the taxpayer to gain employment or open up a new income earning activity. In these circumstances the expenses are incurred at a point too soon to be regarded as having been incurred in gaining or producing assessable income (paragraph 15 of TR 98/9; FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).
The self education expenses incurred by the taxpayer were incurred in order to pursue their study. The taxpayer did not incur these expenses in order to earn the scholarship income. Therefore they were not incurred in gaining or producing assessable income for the purposes of section 8-1 of the ITAA 1997. This is consistent with the approach taken in TR 98/9 with regard to certain Commonwealth education assistance schemes (paragraphs 18 & 19 of TR 98/9).
Further the self education expenses were incurred by the taxpayer for the purpose of qualifying themselves to enter a particular profession and open up new income earning opportunities in that field. These expenses were incurred at a point too soon to be regarded as incurred in earning their assessable income.
Consequently, the taxpayer, a student receiving only assessable scholarship income, is not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.
Date of decision: 10 March 2003Year of income: 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(1)
section 8-1
section 51-10
paragraph 51-35(c)
paragraph 51-35(d)
Case References:
FC of T v. Maddalena
71 ATC 4161
Related Public Rulings (including Determinations)
Taxation Ruling TR 98/9
Keywords
Self education expenses
Scholarships, fellowships and bursaries
ISSN: 1445-2782
| Date: | Version: | |
| You are here → | 10 March 2003 | Original statement |
| 22 July 2011 | Archived |