ATO Interpretative Decision

ATO ID 2002/506 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database as it is superseded by Taxation Ruling TR 98/9.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenditure incurred on self-education where the taxpayer receives a tax-free scholarship and is employed part-time in the field of study?

Decision

Yes. The taxpayer is entitled to a deduction for self education expenses under section 8-1 of the ITAA 1997 as the expenses were incurred in earning assessable income. The deductible amount however, is limited under section 82A of the Income Tax Assessment Act 1936 (ITAA 1936) to the net self education expenses that exceeds $250.

Facts

The taxpayer has a Bachelor degree in Dental Surgery and is undertaking postgraduate research study for a Doctor of Philosophy in Dentistry.

The taxpayer is employed as a dentist on a part-time basis.

The taxpayer's main source of income is a tax-free postgraduate scholarship administered through a University which was granted to financially assist the taxpayer in gaining the qualification.

The taxpayer incurred expenses in studying for the Doctor of Philosophy.

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.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 56 ALR 785; (1949) 8 ATD 431 the High Court stated that:

'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.'

Taxation Ruling TR 98/9 discusses circumstances in which self-education expenses are allowable as a deduction. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

Paragraph 14 of Taxation Ruling TR 98/9 states 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.

The course of study will result in the maintenance or improvement of the taxpayer's dentistry skills. There is a relevant connection between the course of study and the taxpayer's employment activities.

Paragraphs 71 to 77 of Taxation Ruling TR 98/9 express the view that self-education expenses are not relevant and incidental to the receipt of income from educational assistance schemes where the scheme provides for payments in the nature of assistance. They are granted because a student is enrolled in a course of study and satisfies eligibility requirements.

The taxpayer's postgraduate scholarship is provided to assist the taxpayer financially. The granting of the scholarship is dependant on the taxpayer applying for the scholarship, progressing in their studies, and continuing to meet the eligibility requirements. Thus, the self-education expenses incurred by the taxpayer during their studies do not have the relevant connection to the earning of the exempt scholarship income.

The self-education expenses are therefore deductible under section 8-1 of the ITAA 1997 as they relate to the earning of assessable income and not to the earning of exempt income. However, section 82A of the ITAA 1936 provides that self-education expenses that are allowable under section 8-1 of the ITAA 1997 are limited in deductibility to the net amount of self education expenses that exceeds $250.

Legislative References:
Income Tax Assessment Act 1997
   section 8-1

Related Public Rulings (including Determinations)
Taxation Ruling TR 98/9

Keywords
Deductions & expenses
Self education expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  2 May 2002

ISSN: 1445-2782