Edited version of your private ruling

Authorisation Number: 1012460471883

Ruling

Subject: self education expenses

Question 1

Are you entitled to a deduction for self education expenses incurred during the period you were in receipt of Austudy for the 2008-09 financial year?

Answer

Yes, in part.

Question 2

Are you entitled to a deduction for self education expenses incurred during the period you were in receipt of Austudy for the 2009-10 and 2010-11 financial years?

Answer

Yes.

Question 3

Are you entitled to a deduction for self education expenses incurred during the period you were in receipt of Austudy for the 2011-12 financial year?

Answer

No.

Question 4

Can you carry forward the losses arising from the allowable self education expenses incurred during the years you received Austudy income until they are extinguished by your future assessable income?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You were a student undertaking a full-time degree.

You received Commonwealth benefits during your study.

You also incurred expenses for course fees, student activity membership, books, stationery and other expenses.

You have not claimed any self education expenses during the relevant years.

You have documentation evidencing your expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1,

Income Tax Assessment Act 1997 Division 36,

Income Tax Assessment Act 1997 section 36-10,

Income Tax Assessment Act 1997 subsection 36-15(2) and

Income Tax Assessment Act 1997 subsection 36-15(7).

Reasons for decision

Summary

The self education expenses you incurred in undertaking a medical degree are deductible in relation to the receipt of your Austudy income, but only to the extent:

· they were incurred during the period you received Austudy, and

· were incurred before 1 July 2011.

You can carry forward the losses arising from the self education expenses incurred during the years you received Austudy income until they are extinguished by your future assessable income.

Carried forward losses need to be offset against your assessable income and exempt income. (Amounts of exempt income include any start-up scholarship or supplementary amounts of youth allowance you may have received to help cover the costs of rent and telephone expenses).

You can only deduct self education expenses that you incurred during the period you were receiving Austudy, so for the 2008-09 year only expenses incurred during the period 31/1/09 to 30/6/09 are deductible.

Following the change in the law to enact section 26-19 of the Income Tax Assessment Act 1997, self education expenses incurred in deriving rebatable benefits, such as Youth allowance, are not deductible in the 2011-12 and later income years.

Detailed reasoning

Question 1, 2 & 3

Subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that you can deduct from your assessable income any loss or outgoing to the extent that:

· it is incurred in gaining or producing your assessable income; or

· it is necessarily incurred in carrying on a business for the purposes of gaining or producing your assessable income.

Subsection 8-1(2) of ITAA 1997) notes that you cannot deduct a loss or outgoing under this section to the extent that:

· it is a loss or outgoing of capital, or of a capital nature; or

· it is a loss or outgoing of a private or domestic nature; or

· it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income ; or

· a provision of this Act prevents you from deducting it.

To claim a deduction for self education expenses for the 2008-09 to 2010-11 income years, you must have met one of the following conditions when you incurred the expense:

the course maintained or improved a skill or specific knowledge required for your then current work activities (FCT v Studdert 91 ATC 5006 at 5015-5016; (1991) 22 ATR 762 at 772)

you could show that the course was leading to, or was likely to lead to, increased income from your then current work activities (FCT v. Hatchett (1971) 125 CLR at 498; 71 ATC at 4186; (1971) 2 ATR at 559; FCT v. Smith 78 ATC 4157; (1978) 8 ATR 518; in FCT v. Lacelles-Smith 78 ATC 4162; (1978) 8 ATR 524). or

by undertaking an approved course of study full-time, you qualified for and maintained an entitlement to receive a 'rebatable benefit' (such as Youth allowance or Austudy): FCT v. Anstis [2010] HCA 40. (Note: Expenses incurred in gaining or producing 'rebatable benefits' are not deductible in the 2011-12 and later income years, following a change in the law to enact section 26-19 of ITAA 1997)

You cannot deduct self education expenses for a course that:

· relates only in a general way to your current employment or profession, or

· will enable you to get new employment.

The Anstis decision

The High Court, in FCT v. Anstis [2010] HCA 40 (Anstis), decided that education expenses satisfied the 1^st positive limb of section 8-1 of the ITAA 1997 (ie incurred in gaining or producing assessable income) where the taxpayer who incurred the expenses was in receipt of Youth Allowance. In a joint judgement, French CJ., Gummow, Kiefel and Bell JJ, provided the following at paragraph 29:

It may be said that the income was assessable not by reason of any personal exertion or exploitation of property on the part of the respondent. However, contrary to the submission by the Commissioner, that does not inexorably lead to a conclusion that there may be no deductions of any kind allowed under s 8-1 of the 1997 Act. The notion of "gaining or producing" income within the meaning of s 8-1(1)(a) is wider than those activities which may be said to earn income. According to its ordinary meaning, to "gain" means not only to "earn or obtain (a living)" but to "obtain, secure or acquire" or to "receive". Similarly, the ordinary meaning of the verb "produce" is to "bring (a thing) into existence" and is not limited to bringing something into existence by mental or physical labour.

And further at paragraphs 30-31,

…, the assessable Youth allowance income received by the respondent was gained or produced by her entitlement to that payment consequent on the determination by the Secretary that she qualified for the payment. That statutory right to payment would be retained by her, without reduction, non-payment, suspension or cancellation, so long as she maintained her qualification for the payment by satisfying the activity test by undertaking full-time study so defined.

The reason or motive of the respondent for incurring those education expenses, which could be characterised, for example, as obtaining a qualification to undertake future employment as a teacher, is not determinative of the question whether they were incurred in gaining or producing income. The occasion of the outgoings was to be found in what the respondent did to gain or produce, by establishing and retaining her entitlement to, the receipts provided by the terms of the social security legislation.

Also at paragraph 34,

Those outgoings were deductible by reason of their being incurred in the course of her retention of a statutory right to payment.

Application to your circumstances

In your case, some of your self education expenses in the 2008-09 income year were incurred prior to your receipt of Austudy from Centrelink. These expenses will not satisfy the conditions of deductibility in subsection 8-1(1) of the ITAA 1997. You are only entitled to a deduction for the expenses incurred during the period you were in receipt of Austudy for the 2008-09, 2009-10 and 2010-11 financial years.

Due to a change in the law, you are not entitled to a deduction for self education incurred during the 2011-12 financial year in relation to the receipt of your Austudy income.

Question 4

Carry forward losses

Division 36 of the ITAA 1997 contains provisions which allow taxpayers to carry forward tax losses arising in prior income years and claim these as deductions.

Section 36-10 of the ITAA 1997 states that a tax loss for an income year is calculated by first adding up the amounts which you can deduct in the relevant income year, but not including tax losses from earlier income years, and then subtracting your total assessable income and net exempt income for that year. The amount remaining is your tax loss for the year.

Subsection 36-15(2) of the ITAA 1997 provides that where a taxpayer does not have net exempt income, a tax loss is deductible against the excess of total assessable income and total deductions in a later income year.

Where all or part of the tax loss cannot be deducted in an income year, subsection 36-15(7) of the ITAA 1997 provides that the undeducted amount can be carried forward to the next income year. The undeducted amount is then applied to any excess in that next income year or the balance carried forward to subsequent income years.

Application to your circumstances

In your case, you are entitled to a deduction for the self education expenses you incurred during the period you were in receipt of Austudy from Centrelink for the 2008-09, 2009-10 and 2010-11 financial years. Where the total of the deductions exceed your assessable income, including your Austudy income (and if applicable, any net exempt income), a tax loss will result.

In accordance with subsection 36-15(7) of the ITAA 1997, the undeducted amount of the tax loss may be applied against the taxable income for the next financial year until such time as all losses are absorbed.

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