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Edited version of private ruling
Authorisation Number: 1011852214508
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Ruling
Subject: Self education expenses
Question
Are the interest expenses on your loans, which were used to pay for your undergraduate and postgraduate studies, deductible as self education expenses?
Answer
No.
This ruling applies for the following periods:
· Year ended 30 June 2005
· Year ended 30 June 2006
· Year ended 30 June 2007
· Year ended 30 June 2008
· Year ended 30 June 2009
· Year ended 30 June 2010
· Year ended 30 June 2011
· Year ending 30 June 2012
· Year ending 30 June 2013
· Year ending 30 June 2014
· Year ending 30 June 2015
Relevant facts and circumstances
You carried out undergraduate studies overseas.
You moved to Australia to undertake postgraduate studies.
You did not commence work in this field until you completed your studies.
You were required to take out loans to pay for the undergraduate and postgraduate programs.
You have incurred interest on the loans taken out to fund your studies.
You are still paying off the principal and interest on these loans whilst currently working in this field.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Summary
The funds borrowed were not used for an income-producing purpose, but related to courses of study undertaken before you obtained your current employment.
Accordingly, there is not a sufficient connection between the interest expense and current income-earning activities; therefore no deduction is allowable for the interest incurred on these loans.
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 the course of gaining or producing assessable income, but are not allowable to the extent that they are of a capital, private or domestic nature.
Taxation Ruling TR 98/9 sets out the circumstances in which self education expenses are allowable as deductions, and states that these expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income earning activities.
This ruling also states that a deduction is allowable for interest incurred on borrowed monies where the funds are used to pay for self education expenses associated with a course of education, which enables a taxpayer to maintain or improve his or her skill or knowledge or is likely to lead to an increase in income from the taxpayer's current income earning activities.
However, a deduction is not allowable for self education expenses if the study is designed to enable a taxpayer to get employment, to obtain new employment, or to open up a new income earning activity (whether in business or in the taxpayer's current employment). The expenses come at a point in time too soon to be regarded as being incurred in gaining or producing assessable income.
Paragraph 117 and 118 of T/R 98/9 also provides the following example which is similar to your circumstances:
After completing his secondary education, Alex studied commerce as a full-time student at a private university. He borrowed $30,000 in 1995, repayable over 5 years, and used the funds to pay course tuition fees. He completed his degree the following year and obtained employment with an accounting firm in early 1997.
No deduction is allowable for interest incurred on the loan. The funds borrowed were not used for an income-producing purpose, but related to a course of study undertaken by Alex before he obtained his current employment. Accordingly, there is not a sufficient connection between the interest expense and Alex's current income-earning activities.
In your case, you completed undergraduate studies overseas and then moved to Australia undertake postgraduate studies. To fund both of these programs you were required to obtain loans, which you are still currently paying off.
Although you are now working, at the time that you borrowed these funds you did not earn assessable income in this field of work. Consequently, the interest incurred does not have a sufficient connection with your current income earning activities.
Therefore you are not entitled to a deduction under section 8-1 of the ITAA 1997.
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