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Edited version of your written advice
Date of advice: 18 February 2019
Subject: Self-education expenses
Are the course fees, textbooks, transport from home to university and back again, stationary, student amenities union fees and related internet costs incurred in connection with the self-education course an allowable deduction?
Is the cost of child care incurred while attending the intensive days for the self-education course an allowable deduction?
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You are currently employed on a full time basis, having commenced in early 20XX.
You have chosen to undertake certain subjects of a self-education course, of which all the individual subjects you will be undertaking relate to your current employment.
You will be undertaking the relevant subjects of the self-education course to gain a better understanding of the relevant concepts in order to assist you in your current employment role, including increasing your skills in your current role and helping your career aspirations.
The classes commenced in early 20XX.
Your employer will be providing financial assistance to assist you in covering the course fees, which will cover half of the fees for each subject up to a maximum amount.
You are required to pay the course fee component not covered by your employers financial assistance by the census date, being early 20XX for semester 1 and mid to late 20XX for semester 2.
You will be deferring the component not covered by your employer’s financial assistance to FEE-HELP.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
You are entitled to claim a deduction for the course fees, textbooks, transport from home to university and back again, stationary, student amenities union fees and related internet costs incurred in connection with the self-education course as these expenses have a nexus to your income earning activities.
Section 8-1 of the Income Tax Assessment Act 1997 (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 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348.
TR 98/9 also provides that if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, the self-education expenses are allowable as a deduction.
In your case, it is accepted that the course subjects you will be undertaking will maintain or enhance the skills that you require to perform your duties in your current employment. Consequently, the self-education expenses you will incur have the necessary and relevant connection with the earning of your assessable income and are allowable deductions under section 8-1 of the ITAA 1997.
You are only entitled to a deduction for the expenses that you have incurred. That is, you must reduce the expenses by the amount of any reimbursement from your employer.
You have obtained financial assistance for the shortfall between your employer’s financial assistance and the total cost of the course fees under the full-fee paying students Higher Education Loan Programme (FEE-HELP).
Whilst this is the case, ATO ID 2005/26 states that even though a taxpayer has obtained a loan for all or part of the fees for the course under FEE-HELP, this does not preclude them from claiming a deduction for the expenses incurred in relation to the course, so long as the course is directly related to their income earning activities.
As such you are able to claim a deduction for the amount of the loan obtained under FEE-HELP.
Textbooks, stationery and student amenities union fees
TR 98/9 provides that course fees, textbooks, stationery and student union fees incurred in attending an educational institution where there is a necessary and relevant connection with the earning of assessable income is allowable under section 8-1 of the ITAA 1997.
Therefore, these expenses you will incur relating to the study you will be undertaking are deductible self-education expenses.
Transport from home to university and back again
Paragraph 160 of TR 98/9 provides that a deduction is allowable for motor vehicle and travel expenses in connection with a course of education in the following situations:
● the cost of travel between home and the place of education and then back home
● the first leg of the trip, if a taxpayer travels from home to the place of education and then on to work (the cost of travelling from the place of education to work is not a self-education expense)
● the first leg of the trip, if a taxpayer travels from work to a place of education and then home (the cost of travelling from the place of education to home is not a self-education expense)
● the cost of travel between work and the place of education and then back to work.
Put simply, when you use a car or public transport, you can claim the cost of travelling from your:
● home to your place of education and back, and
● work to your place of education and back.
Your travel from your home to the university and back home is a self-education expense. As such this cost is an allowable deduction.
However, it is important to highlight that when you travel directly from work to the university then home, only the first part of the trip from work to the university is considered an allowable self-education expense.
Related internet costs
Internet costs are an allowable deduction under section 8-1 of the ITAA 1997 where they are incurred in producing your assessable income. Therefore in your case where you incur these types of expenses in producing your assessable income (in connection with the work related self-education course) , these expenses you incurred are deductible under section 8-1 of the ITAA 1997 subject to appropriate apportionment between income-earning and private purposes.
You are not entitled to a deduction for the costs of child care as these types of expenses are private and domestic in nature.
Section 8-1 of the Income Tax Assessment Act 1997 (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 or a provision of the taxation legislation excludes it.
Whether or not there is a sufficient connection will depend upon the facts of the case, including the nature and type of income producing activities and the character of each expenditure. It is possible to incur an expense to assist you to gain or produce assessable income, but a deduction is denied due to the expense being that of a private or domestic nature. One of the tests used to determine if an expense is private or domestic is the ‘essential character’ test.
Taxation ruling TR 2003/16 provides an explanation and guidance on this test, and when it is considered there is a connection between earning assessable income and the expense. Firstly you determine what the income earning activities are and then you decide whether a sufficient connection exists between those income earning activities and the relevant expenditure. If there is a clear connection between the expenditure and income earning activities (derivation of income), a deduction may be allowable. However it is not sufficient that the expenditure is a prerequisite to the earning of assessable income, it must actually contribute to the derivation of the assessable income.
Paragraph 51 of Taxation ruling TR 98/6 provides that a deduction is not allowable for child care expenses, even if it is a prerequisite for an employee to obtain and pay for child care so that he or she can go to work and earn income. Paragraph 52 of TR 98/6 also provides that these types of expenses are also not an allowable deduction if incurred by an employee to undertake studies relevant to his or her employment.
Paragraph 52 of TR 98/6 also states that the High Court held in Lodge v. FC of T (1972) 128 CLR 171; 72 ATC 4174; 46 ALJR 575; 3 ATR 254 (where the taxpayer worked under contract from home, and to enable her to carry out her duties effectively, she sent her child to a child nursery) that child care expenditure was neither relevant nor incidental to gaining or producing assessable income and was therefore not an allowable deduction. The High Court also held that the expenditure was also of a private or domestic nature.
There is also another court case, Martin v FC of T (1984) ATC 4513; 15 ATR 808 (Martin’s case) that has some similarities to your circumstances, in that there were expenses incurred that were attributable to both earning assessable income and being a parent. In Martin’s case, the taxpayer, a single parent, contended that their employer required them to incur child-minding expenses to ensure that they were not distracted from their work by their child. The court found that the expenditure in question (Kindergarten fees) was a prerequisite to the taxpayer’s employment earning activities by way of allowing them to take on their employment duties. The court also found that there was nothing about the expenditure which was relevant or incidental to the work they were performing as part of their employment, and the child minding expenses were therefore considered to be a prerequisite to their employment or private and domestic in nature.
Application to your situation
You have asked about the deductibility of child care costs whilst attending a work related self-education course.
Your circumstances and the necessity of those expenses are similar to Martin’s case, where the court held that the expenditure was only a prerequisite to earning assessable income as it allowed the taxpayer to take on the jobs in question, and that the expenses were considered to be private and domestic in nature.
The essential character of your child care costs are considered that of a prerequisite to earning or producing assessable income, and private or domestic in nature, as even though incurring the expense enables you to attend the work related self-education course (which then allows you to undertake studies relevant to your employment), the expense is a prerequisite to being able to attend the self-education course.
As such your child care costs are domestic and private in nature, and you are therefore not entitled to a deduction for the cost of placing your children in child care whilst attending the self-education course.