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Ruling

Subject: Deduction - car expenses - self-education

Question 1

Are you entitled to a deduction for car expenses for travel from home to the work placement and return to home as a self-education expense?

Answer

No

Question 2

Are you entitled to a deduction for the daily parking expenses incurred in undertaking your work placement as a self-education expense?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

During the 2009-10 and 2010-11 financial years, you were studying for a degree at a university.

You were in receipt of a government education allowance for most of the time that you were studying for your degree.

The course is an integrated academic and practical course of four years duration where students divide their time between classes on campus and work placements.

During a period of approximately four weeks in late 2009, you undertook a practical work experience component of your course. You did not receive any income for this work placement.

You provided a letter which details the conditions of the contract between you and the work placement employer. This letter stated that your employment status was full time and for a fixed term. These details include the amount of weekly income paid to you.

During the work placement you incurred car parking expenses each day.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Reasons for decision

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 to the extent that they are of a capital, private or domestic nature, or relate to the earning of exempt income.

In order to satisfy the requirements of section 8-1 of the ITAA 1997, there must be a close and immediate connection between the income and the expenditure incurred. The expenditure must be incurred 'in the course of' gaining or producing the assessable income (Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478).

A recent High Court decision, Commissioner of Taxation v. Anstis (2010) 241 CLR 443; (2010) 76 ATR 735; 2010 ATC 20-221 (Anstis case), held that self-education expenses were deductible against Youth Allowance income.

In the Anstis case, the taxpayer was in receipt of Youth Allowance. In order for the taxpayer to receive these payments, she was required to satisfy the activity test and in satisfying that test she was required to be enrolled in a course of education at an educational institution, undertaking at least three quarters of the normal amount of full-time study in respect of the relevant course and enable the Secretary to form the opinion that she was making satisfactory progress towards completing the course. In satisfying these requirements, the taxpayer had incurred expenses (for example student administration fees, textbooks and computer depreciation) for which she claimed a deduction against the Youth Allowance income.

It should be noted however, that while the Commissioner accepts the deductibility of similar expenses incurred by full-time students receiving Youth Allowance payments, private expenses such as meal expenses and home to university travel costs continue to be non-deductible.

The general principles in relation to the deductibility of expenses incurred in travelling between home and work (normal place where income-producing activities are undertaken) were established in Lunney v FC of T; Hayley v. FC of T (1958) 100 CLR- 478; 7 AITR 166 (Lunney and Hayley). In general, such expenses are not deductible for income tax purposes. As stated by Williams, Kitto, and Taylor JJ. in that case at pages 498-499:

It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income.

The cost of travel between home and the normal place where an employee's income-producing activities are undertaken is generally incurred to put the employee in a position to perform duties of employment, rather than in the performance of those duties.

Taxation ruling TR 98/9 deals with the deductibility of self-education expenses and is an updated version of Taxation Ruling TR 92/8 which was withdrawn in 1998. However, principles covered in paragraphs 11(d), 13(c) 43 and 44 of TR 92/8 relating to motor vehicle and travel expenses still apply.

Paragraph 13(c) of TR 92/8 states that motor vehicle expenses between a taxpayer's home and an educational institution where the taxpayer carried out income-earning activities at the institution are not an allowable deduction.

In Case U45 87 ATC 320, the Administrative Appeals Tribunal (AAT) was of the view that, in determining whether self-education expenses are allowable, an educational institution is considered to be a place of work. Accordingly, deductions were not allowed for the costs of travelling between the taxpayer's home and the institution.

We accept that in the case of persons receiving income from government education payments that the income earning activities, being the study, are carried out at the educational institution as well as the various placement locations, such as in schools for trainee teachers and in hospitals for trainee doctors. There is no doubt that payment of the government educational payment is dependant upon the study being undertaken at the institution and the placement locations. In these situations, for the duration of the placement, the placement locations are considered to be the primary place where income-producing activities are undertaken.

Your case can be likened to the Anstis case, in that you were a full-time student in receipt of a government education payment for part of each of the 2009-10 and 2010-11 financial years to undertake your degree. In undertaking the study, you incurred expenses in satisfying the requirements in order for you to receive the government education assistance income. As such, it can be said that you incurred expenses in undertaking your degree in order for you to retain your government education assistance income.

These studies were undertaken at the university and for a period of time at a work placement. Therefore, it is considered that the university, and the place of work placement, were the normal places where your income-producing activities were undertaken.

On days when you undertook your study activities at the university, this is considered to be the normal place where you undertook your income-producing activities and the travel from home to the university and return home is travel akin to home to work travel and private in nature. Therefore, no deduction is allowed for the cost of this travel.

On days when you undertook your study activities by way of placement, that is considered to be the normal place where you undertook your income-producing activities and the travel from home to there and return is travel akin to home to work travel and private in nature.

Therefore, as travel to both the university and the placement is considered to be private in nature, no deduction is allowed under section 8-1 of the ITAA 1997 for car expenses incurred in travelling to either the university or the placement location.

Final Work Placement

You undertook a final work placement during the first half of 2010. You provided a letter detailing your contract with the employer stated that your employment status was full time and for a fixed term. This letter also stated the amount of weekly income you would receive for this employment.

As travel from home to a place of paid employment is private in nature, expenses incurred for your travel to the placement to undertake your employment is home to work travel and private in nature. Therefore, you are not entitled to a deduction for car expenses under section 8-1 of the ITAA 1997 for this travel.

Car parking expenses

Generally, a deduction is allowable for parking fees incurred while travelling in circumstances where the travel expenses are deductible. However, where the travel is between a taxpayer's home and their normal place of employment, the cost of that travel is a private expense and the parking fees therefore, have that same private character.

Therefore, as the travel is a private expense, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the parking expenses incurred in attending the university or placement locations.

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