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Edited version of your written advice

Authorisation Number: 1013091348325

Date of advice: 16 September 2016

Ruling

Subject: Deductibility of self-education expenses

Question 1

Are you entitled to a deduction for self-education expenses you incurred for course fees and overseas airfares in relation to you undertaking a Master's degree?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You will be undertaking a Master's degree at a university in the overseas country.

You are employed in Australia and you will be taking leave without pay from your job for the period of the degree and a short extra period of time once you have completed the degree. You are taking other types of leave from the commencement of your leave up until your unpaid leave begins.

You have been in your current role for a period of time.

In your current role you provide certain functions.

You are undertaking the degree to deepen your understanding and capability of certain functions, which you advise is the core requirement of your current role.

You intend on returning to your current job at the end of your degree and your employment will be retained throughout your study.

It is your intention that you will remain overseas upon the completion of your degree in for a short period of time. You will return to Australia sometime between the completion of your degree and the end of your leave.

Your employer has granted you leave without pay on the basis that you will be undertaking the degree.

You will be paying for your own course fees.

You paid an amount towards course fees in the relevant financial year.

You paid for your overseas flight to attend the course in the relevant financial year.

Your employer is not contributing financially towards your degree.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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 where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses (TR 98/9) 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).

Further, paragraph 26 of TR 98/9 states that expenses relating to self-education which are compulsory and unavoidable, as well as those for which a need can be shown in terms of fulfilling the requirements of the course, are regarded as being 'necessarily incurred' and are expenses of self-education.

Paragraph 111 of TR 98/9 states:

Taxation Ruling TR 98/9 discusses the apportionment of overseas travel expenses where there is a dual purpose for the travel. If the purpose of the travel was for income earning purposes, the existence of an incidental private purpose does not affect the characterisation of the related expenses as being incurred in gaining assessable income.

The fact that a person is on unpaid leave from their employment does not sever the connection with their employment as they are still employed during that time. In Sykes v. Cleary (No.2) 1992 176 CLR 77 it was decided that an employee taxpayer on leave without pay continues to be an employee. Therefore will be no break in employment due to you being on unpaid leave.

In your case you are employed in a role in Australia and you will be completing a degree in the field of your employment. You incurred costs for course fees and overseas airfares in the relevant financial year in relation to undertaking the degree. You have advised the degree will deepen your understanding and capability in the functions you perform in your role. It is considered that the study will maintain or improve your skill or knowledge used in your current income earning activity.

Consequently, you are entitled to a deduction for the course fees and overseas airfares incurred. As the main purpose of the degree and the travel is the gaining or producing of income, the travel cost is allowable. Allowable self-education expenses are deductible in the financial year in which they are incurred.

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