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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011697030846

Ruling

Subject: Self Education Expenses

Question 1

Is the lump sum payment you received for future employment assessable income?

Answer: Yes.

Question 2

Are you entitled to a deduction for self education expenses for course fees funded using a FEE-HELP loan?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

You have completed two degrees.

In 2008 you received an offer of employment from an organisation to work in their team.

You were due to commence this position early in 2009.

Early in 2009 you were contacted by this organisation and informed that due to the global financial crisis, your start date was to be deferred for an unspecified period.

In consideration of this deferral the organisation paid you a lump sum in order to retain your employment.

They suggested you undertake further tertiary study whilst you awaited your commencement date.

You subsequently enrolled fulltime in a Masters degree, in order to up grade your qualifications whilst you waited for new start date.

The duration of the degree was two semesters.

You commenced your first semester early in 2009 and you received a loan under FEE-HELP to pay your tuition fees.

You commenced working in the middle of 2009.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997.

In your case, at the time of payment you had not commenced employment but there was a valid contract of employment. The payment related to, was because of, or in respect of future employment as you received the amount with the understanding at the time and thereafter that there was on hand a valid contract of employment in which the commencement date had merely been deferred.

Accordingly, it is considered that the payment received is ordinary income for the purposes of section 6-5 of the ITAA 1997 and is therefore included in your assessable income.

Self Education Expenses

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 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.

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, it is accepted that the Masters degree will maintain or enhance the skills that are required in the performance of your current role. Consequently, the self-education expenses incurred have the necessary and relevant connection with the earning of your assessable income. You are therefore entitled to a deduction under section 8-1 of the ITAA 1997 for self-education expenses.

FEE-HELP

If you obtain a loan for all or part of the fees for your course under FEE-HELP, this does not preclude you from claiming a deduction for the fees. You are still entitled to a deduction under section 8-1 of the ITAA 1997. The fees are deductible in the year the expense is incurred, that is, the year in which the study is undertaken.

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