Edited version of private ruling

Authorisation Number: 1011553975966

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Self-education expenses

Question 1

Are you entitled to a deduction for tuition fees you will incur in undertaking your postgraduate studies?

Answer

Yes.

Question 2

Are you entitled to claim the tuition fees as a self-education deduction in the year they are incurred?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You are employed as a senior executive.

You will undertake postgraduate studies overseas.

The course will commence in September of the relevant year and will be completed in June of a future year.

You are not required to undertake postgraduate studies for continuing employment, however it is strongly encouraged and all senior staff in your group have a formal postgraduate qualification. A letter from your employer states that they are encouraging you to undertake the course in order to improve your technical and managerial skills.

You will be on unpaid leave whilst undertaking your studies.

You are guaranteed to assume the same duties on your return and expect an increase in salary.

You will be receiving a salary until September of the relevant year but you do not expect to receive any income in the future income year.

You are fully funding your studies from savings and borrowings.

You are travelling to study overseas alone.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

The tuition fees you will incur in undertaking your postgraduate studies have the necessary and relevant connection with the earning of your assessable income and are therefore deductible.

The tuition fees that you will incur are deductible in the year that they are incurred. If the deductions create a loss situation for you, you are entitled to claim a loss of an earlier year against taxable income in a subsequent year.

Detailed reasoning

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 taxpayers 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; (1961) 8 AITR 406). 

Similarly, 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, a deduction is allowable.

In your case, you are employed as a senior executive. It is accepted that the completion of your postgraduate studies will assist you to carry out your daily duties in the workplace.  

As the postgraduate studies will enhance your existing skills and knowledge, the tuition fees you will incur have the necessary and relevant connection with the earning of your assessable income and are therefore deductible under section 8-1 of the ITAA 1997.

Limit on deductibility Section 82A

The self-education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. An explanation on how this provision operates is provided at paragraphs 119 to 155 of TR 98/9, which can be accessed on our internet website. An explanation of how this provision operates is also provided on pages 37 to 38 of TaxPack 2010 (NAT 0976).

Carrying forward losses

Division 36 of the ITAA 1997 explains how to calculate a tax loss for an income year. Subsection 36-15(7) of the ITAA 1997 states that if you cannot deduct all or part of your tax loss in an income year, you can carry forward to the next income year the undeducted amount.

In your case, the tuition fees are deductible in the financial year they are incurred. If the deductions create a loss situation for you, you are entitled to claim a loss of an earlier year against taxable income in a subsequent year but you must claim the loss at your first opportunity to do so.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).