Edited version of your written advice

Authorisation Number: 1012713277255

Ruling

Subject: Self-education

Question 1

Are you entitled to a deduction for a portion of the cost of travel?

Answer

Yes.

Question 2

Are you entitled to a deduction for text books?

Answer

Yes.

Question 3

Are you entitled to a deduction for the cost of accommodation?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts

You were a full time professional.

Your employer granted you a leave of absence to attend a degree overseas.

The course was for approximately X months.

Your course fees were covered under a scholarship.

You stayed in college accommodation.

You incurred expenses for airfares, accommodation and text books.

After completing your studies, you stayed and had a X week holiday.

When you returned after completing the degree, you terminated your employment with your employer and commenced work with a different employer.

Your taxable income in the relevant financial year was less than the expenses you incurred.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 40

Reasons for decision

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 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.

Text books

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, 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 (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

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 study has sufficient nexus to your income earning activities. Therefore, you are entitled to a deduction for the cost of text books.

Travel

The expenses incurred for return travel are an allowable deduction, subject to apportionment.

TR 98/9 discusses the apportionment of overseas travel expenses where there is a dual purpose for the travel. Paragraphs 65 and 66 provide the following guidance:

There are at least two kinds of expenditure that require apportionment under section 8-1 of the ITAA 1997. The first is expenditure in respect of a matter where distinct and severable parts are devoted to gaining income and other parts are devoted to some other end. If a study tour or work-related conference or seminar was mainly devoted to a private purpose, such as having a holiday, and the gaining or producing of income was merely incidental to the private purpose, only those expenses directly attributable to the income-earning purpose would be allowable.

The second kind of apportionable expenditure is a single outlay that serves both an income-earning purpose and some other purpose indifferently. While the High Court recognised that there can be no precise arithmetical division in such cases, it said there must be some fair and reasonable division on the facts of each case. For example, if a study tour or work-related conference or seminar is undertaken equally for income-earning purposes and private purposes, it would be appropriate to apportion the expenses equally between the purposes.

In your case, the purpose of the trip is to undertake the course and to have a holiday while overseas. Therefore, as there is a deductible and a private purpose, you are required to apportion your claim for your airfares in a fair and reasonable manner.

Accommodation

Generally, accommodation expenses are private in nature and are not deductible.

TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, explains that expenditure on accommodation will not be allowable as a self-education deduction where a taxpayer has travelled to another location and has established a new home.  The key factors to be taken into account in determining whether a new home has been established include:

• the total duration of the travel;

• whether the taxpayer stays in one place or moves frequently from place to place;

• the nature of the accommodation, e.g., hotel, motel, or long term accommodation;

• whether the taxpayer is accompanied by his or her family;

• whether the taxpayer is maintaining a home at the previous location while away; and

• the frequency and duration of return trips to the previous location.

The question of whether a new home has been established depends on all the facts.  There is no one test to satisfy all the circumstances.

In your case, you stayed in college accommodation for the whole period of approximately X months.

Therefore, while we accept that your overseas trip has the relevant nexus to producing your assessable income your accommodation is not deductible as it is considered that you have established a new home.

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