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Edited version of private ruling

Authorisation Number: 1011569305065

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Ruling

Subject: Deduction- travel and self-education expenses

1. Are you entitled to claim a deduction for travel expenses from your home to attend training sessions and workshops to update your knowledge?

Yes.

2. Are you entitled to claim a deduction for travel expenses to attend education related activities?

Yes.

3. Are you entitled to claim a deduction for a portion of your travel expenses when travelling overseas?

No.

4. Are you entitled to claim a deduction for the cost of educational resources purchased while you were overseas?

Yes.

5. Are you entitled to a deduction for expenses incurred as a result of providing tuition for a fee?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

You are employed with an education facility as a teacher.

You also provide private tuition for a fee to the general public.

You declared the income from your private tuition in your tax returns.

You hold qualifications in your field of employment.

You teach a number of subjects at the education facility.

You received an allowance from your employer paid at the cents per kilometre rate for travel to attend training seminars and workshops.

You use you private motor vehicle to undertake the following travel:

You have a personal interest in a musical activity.

You have been a member of a community organisation which undertakes a musical activity for a number of years.

You travelled overseas to attend a musical tour.

The purpose of the trip was to gain knowledge of music.

You had undertaken the following activities while overseas:

As a result of the experiences of the trip overseas you share new ideas, knowledge and techniques with the students you teach.

You also use the knowledge, technique, new music and ideas with the community organisation.

Your employer did not request you to travel overseas.

You did not receive any allowances or reimbursements for expenses for travelling overseas.

Your employer did not provide you with leave to travel overseas.

You have not kept a travel diary of your overseas travel.

You are seeking to claim a deduction for part of the travel cost for travelling overseas.

You incurred a number of expenses in relation to providing private tuition.

You have kept the relevant documents to substantiate your claims.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) governs the deductibility of travel expenses, including expenses incurred in travelling overseas. To be deductible under section 8-1 of the ITAA 1997, a loss or outgoing must be relevant or incidental to gaining or producing assessable income. Alternatively, it must be part of the cost of carrying on a business in order to produce assessable income. To be deductible under this section, a loss or outgoing must have the essential character of a business or income-producing expense. The loss or outgoing also cannot be of a capital, private or domestic nature, or relate to the earning of exempt income.

For an expense to satisfy the tests in section 8-1 of the ITAA 1997:

Travel expenses

A deduction is generally not allowable for the cost of travel between home and work because the expenses are not considered to be incurred in producing assessable income.

The Commissioner's view on the deductibility of employee teachers' work related expenses is set out in Taxation Ruling TR 95/14 (TR 95/14). TR 95/14 states at paragraph 145:

You can claim a deduction when you travel directly between education facilities to attend education related activities.

Car expenses

Pursuant to Division 28 of the ITAA 1997, there are four different methods available to claim car expenses when a car is used for work related purposes:

You are able to choose the method that best suits your situation.

For further information on how to claim work related car expenses and travel expenses refer to pages 29 to 33 of TaxPack 2010.

Self-education expenses

Most self-education expenses are incurred voluntarily and to be allowable under section 8-1 of the ITAA 1997, the expenditure must be characterised as having been incurred in gaining or producing assessable income.

Paragraph 188 of TR 95/14 states that:

The above principles are also outlined in Taxation Ruling TR 98/9 which deals with the deductibility of self-education expenses.

Travel to attend training and workshops at educational institutions

In your case, you hold professional qualifications and derive your assessable income from teaching and providing music tuition. In order to maintain and update your knowledge you attend a number of training sessions and music workshops. The travel costs or motor vehicle costs incurred in attending the training sessions and music workshops are therefore deductible under section 8-1 of the ITAA 1997.

Motor vehicle expenses may be claimed for the cost of travel between the following:

However, only the first leg of each trip is deductible where you travel:

The cost of the second leg of the outward journey are costs incurred in order to get to work and the costs incurred in the second leg of the return journey are costs incurred in order to return home. As the essential character of this type of expenditure is of a private nature these costs are not deductible under section 8-1 of the ITAA 1997.

Overseas travel

The deductibility of your overseas travel needs to be considered under general self-education principles noted above and relevant case law. The leading case for expenses of this nature is the High Court decision in Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348; (1961) 8 AITR 406 (Finn's case).

That case involved a senior design government architect. He went on an overseas tour for the express purpose of studying current trends in architecture with a view to improving his prospects of future promotion. His employer requested him to travel to South America and reimbursed him for some of his expenses. The High Court found that the travel expenses were part and parcel of his employment. That connection was clear because his employer requested him to travel and provided financial assistance. The travel was also likely to lead to promotion.

In AAT Case 4010; AAT Case V1 88 ATC 101 (Case V1), a music teacher was allowed a deduction for her overseas trip as the trip was seen to increase and update her knowledge as a music teacher. In this case, the taxpayer spent four months studying music under a scholarship followed by two months of study in a music academy in Finland.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In the Board of Review Case R47 84 ATC 380; (1984) 27 CTBR (NS) Case 101, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France. The trip was not undertaken at the request of the taxpayer's employer. She asserted that the trip increased her teaching skills.

The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher. The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer. Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter.

In Case Q83 83 ATC 418; (1983) 27 CTBR (NS) Case 11, the taxpayer, a high school French and Indonesian language teacher, travelled overseas with her husband. She claimed a deduction for travel expenses relating to time spent in France and Indonesia. The taxpayer conceded that promotion did not depend on travelling overseas. The Taxation Board of Review disallowed the taxpayer's claim. They found that even though language teachers can, in the course of ordinary tourist activities, derive benefits as teachers, this fact does not transmute tourist activities into business activities.

In Case U 109 87 ATC 657, a science teacher who specialised in geology, joined a 17 day trip to Indonesia and also undertook a 53 day trip to Europe. The taxpayer was not requested to undertake the trips and the Administrative Appeals Tribunal upheld the Commissioner's decision to disallow the deductions on the grounds that the trips were recreational in character.

Case Q57 83 ATC 307; 26 CTBR (NS) Case 119 involved an art teacher who travelled to Greece and Crete to update her knowledge and to keep abreast of art concepts so as to maintain and improve the quality and content of the subject she taught. The board of review found that the costs associated with the travel were not incurred by the taxpayer in the process of carrying out her duties as a teacher.

In your case, you have personal interest in music activity and as a result you are a member of a community organisation. Your primary income earning activity is in the education profession. You also provide private tuition at home for which you are paid a fee for your services.

Your case can be distinguished from Finn's Case and Case V1 in that your travel was not undertaken with a view to increasing your prospects of future promotion. The trip was undertaken as a result of personal interest in music for which you receive no remuneration. You were not requested by your employer to travel to overseas or provided with any financial support to under take the trip overseas.

We acknowledge the fact that the travel undertaken would enable you to have greater first hand knowledge of music which may be useful in your current position with the education facility and when providing private tuition. However, this does not in itself mean that the expenditure was incurred in gaining or producing assessable income.

The circumstances of your travel are similar to travel undertaken in the Taxation Boards of Review cases noted above. Your trip is seen to be predominantly private in nature and as such no deduction can be claimed for the travel expenses for the trip as there is insufficient connection between the outgoing incurred and the gaining of your assessable income. Therefore, a deduction for the travel expenses is not available under section 8-1 of the ITAA 1997.

Educational Resources

The deductibility of work related expenses for teachers is discussed in TR 95/14. Paragraph 205 of TR 95/14 specifies that teaching aids purchased by teachers to be used in the course of carrying out their duties of employment are deductible to the extent they are not private, domestic or capital in nature. The items purchased must have a direct and relevant use in carrying out those duties. Examples of teaching aids including in TR 95/14 include, stationery, books and items used to conduct classes.

Accordingly, any books or items you purchased and used to conduct classes are deductible to the extent they are used in carrying out your duties with the education facility. Where expenditure serves both an income-earning purpose and some other purpose, a fair and reasonable division of the cost is appropriate.

Private tuition expenses

The income from providing private tuition is assessable under section 6-5 of the ITAA 1997. Expenses incurred directly relating to providing private tuition are allowable as deductions under section 8-1 of the ITAA 1997.

Accordingly, fees incurred for updating your knowledge or items purchased and used to conduct private tuition are deductible to the extent they are used in your private tuition activity. You will need to apportion these costs between private and income producing use in a fair and reasonable manner.

Summary

You can claim a deduction for your work related travel in the following circumstances:

You can claim a deduction for expenses incurred in providing private tuition for a fee and where you use educational resources as part of your duties with the education facility subject to apportionment. However, a deduction for the travel expenses to attend the overseas tour is not deductible as there is insufficient connection between the outgoing incurred and the gaining of your assessable income as the music activity is considered private in nature.


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