Disclaimer
This edited version has been archived due to the length of time since original publication.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.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1013055895507

Date of advice: 20 July 2016

Ruling

Subject: Self Education Expenses

Question 1

Are you entitled to claim a deduction for an amount relating to your studies that was repaid for a breach of your agreement with your employer?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2016 - year ending 30 June 2017

The scheme commences on:

01 July 2015

Relevant facts and circumstances

You were employed under an employment agreement (supplied)

Under the agreement, your employer agreed to pay for education expenses, student union fees and stationery as well as salary and wages.

It was also a condition of your employment that you study for a degree and work for three years at the company.

You left within the three years and had to repay a portion of the expenses paid by your employer.

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 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 circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

In cases where monies have been repaid by a taxpayer to the employer for breaching the employment contract, the Board of Review (now called the Administrative Appeals Tribunal) have held that such monies are not allowable deductions: Case J20 (1958) 9 TBRD 109, Case J60 (1958) 9 TBRD 308, Case P20 (1963) 14 TBRD 97 and Case G80 75 ATC 564.

In your case, at the time that you undertook the study, your study and expenses were paid for by your employer under a contractual arrangement. The amount you now have to repay is the result of your choice to leave the organisation and thereby, not fulfilling your obligations under the contract with the employer.

In Case G80 75 ATC 564, the taxpayer became liable to refund to his employer the allowances and tuition fees paid to him as a student in training, for breaching certain conditions. The taxpayer sought a claim for a deduction in respect of the repayments made to his employer for breach of the employment agreement. The Board of Review held at p.564 that:

The cases before the Board of Review clearly supports the view stated in the ATO Interpretative Decision ATO ID 2002/902 that payment for damages (being repayment of self-education expenses) to the employer by the taxpayer is not related to the earning of assessable income. The payment represents expenditure incurred by the taxpayer for breaching the terms of the employment contract. Therefore, the expenditure for damage cannot be said to have been incurred as a self-education expense.

The basis for making the payment resulted from you breaching your agreement with your employer. Your liability to repay the amount relating to your studies was not incidental, nor relevant to the production of assessable income. Rather, the liability you incurred flowed directly from your breach of the agreement with your employer. Accordingly, the amount that was repaid is not an allowable deduction.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).