Edited version of private advice

Authorisation Number: 1051849090065

Date of advice: 9 June 2021

Ruling

Subject: Work related expenses - self education

Question

Are you entitled to claim course fees, student fees, airfares, study tour expenses, laptop depreciation, laptop technical support, a phone plan and books and journals incurred while studying an XXXX at XYZ University prior to your resignation from employment?

Answer

Yes

Question

Are you entitled to claim course fees, student fees, airfares, study tour expenses, laptop depreciation, laptop technical support, a phone plan and books and journals incurred while studying an XXXX at XYZ University after your resignation from employment?

Answer

No

Question

Are you entitled to claim accommodation, accommodation related expenses (such as linen and cleaning), meals, visa expenses, health insurance and car expenses incurred while studying an XXXX at XYZ University?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were employed by Employer A in 20XX and commenced work. You were promoted X years later. Staff in this new role are expected to undertake a XXXXX (XXX) normally X years after commencing employment with Employer A.

Your employer provides support for admission to an XXXX degree and this includes guidance, references of support and sometimes bonded scholarships.

You applied to X universities and accepted a course at XYZ University which commenced in late 20YY. The degree spans X years of study.

You studied an XXXX while on leave of absence in the period until late 20ZZ. During this period, you received a bonded scholarship from your employer.

You incurred expenses while studying an XXX and these included student fees, airfares, study tour expenses, laptop costs, computer technical support, books and study materials, accommodation, accommodation related expenses, meals, a phone plan, visa expenses, health insurance, and car expenses.

You then resigned in late 20XX and repaid any amounts received under this scholarship.

You received a XYZ fellowship. This fellowship partially paid for your course fees from commencement of the course. The fellowship does not need to be repaid and has no terms and conditions.

In late 20XX Employer A made a written offer to re-employ you with a salary of $XXX per annum. Your offer also includes the opportunity to receive a bonus of up to XX% of actual salary earned and a sign-on bonus of $YYY.

This offer of employment was subsequently extended by X months.

You are not receiving Austudy, ABSTUDY or Youth Allowance.

You are not paying for the remaining course fees using the Higher Education Loan Program.

Before leaving to study overseas you were living in a shared apartment in Australia. You departed the shared apartment to live briefly with your parents before departure.

In your first year of study you stayed on campus in University accommodation which was billed by the University. Since then you have lived in shared accommodation, a rented house, which you share with other students.

You do not have a formal duty statement for your roles in Employer A however you have supplied a list of duties and responsibilities for all roles you occupied during the period of study. Your description of roles and responsibilities for each position includes:

•         Analysis of complex business problems for clients

•         Structuring these problems and breaking them down into underlying issues to then develop recommendations for ways to solve these problems. Recommendations would involve analyses of costs, implementation risks and advantages or disadvantages of the recommendations

•         Exploring business expansion opportunities for clients

•         Analysis of new markets, including growth trends, market composition and competitive landscapes

•         Development of corporate and business strategy

•         Launching, training and leading client teams

•         Refining organisational structures and identifying operational efficiencies

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

In general terms, self-education expenses incurred in attending educational institutions are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) where the expenses have the necessary connection in gaining or producing the taxpayer's assessable income.

For a deduction of self-education expenses to be allowable you also need to meet the following governing principles contained in Taxation Ruling 98/9 - Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9).

a)            The taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge.

b)            The study of a subject of self-education objectively leads to, or is likely to lead to, an increase in the taxpayer's income from his or her current income-earning activities in the future.

Types of self-education expenses allowable

Under TR 98/9, subject to the general tests under section 8-1 being met, the following types of expenses related to self-education are allowable:

a)            course or tuition fees of attending an educational institution, work-related conference or seminar, including student union fees;

b)            the cost of professional and trade journals, textbooks and stationery;

c)            airfares incurred on overseas study tours or sabbatical, on work-related conferences or seminars, or attending an educational institution. They are part of the necessary cost of participating in the tour, etc.;

d)            subject to paragraph 24(c) of this Ruling, where a taxpayer is away from home overnight, accommodation and meals expenses incurred on overseas study tours, on work-related conferences or seminars, or attending an educational institution; and

e)            interest incurred on borrowed monies where the funds are used to pay for self-education expenses associated with a course of education, that enables a taxpayer to maintain or improve his or her skill or knowledge or is likely to lead to an increase in income from the taxpayer's current income-earning activities. Regard must be had to the connection between the interest expense and the income-earning activity in each income year interest is claimed because a change in circumstances, for example, a change of employment, may mean that the necessary connection no longer exists.

Taxation Ruling TR 97/7 Income tax; section 8-1 - meaning of "incurred" - timing of deductions deals with whether an expense has been incurred. It states -

6. The courts have been reluctant to attempt an exhaustive definition of a term such as 'incurred'. The following propositions do not purport to do this, they help to outline the scope of the definition.

The following general rules, settled by case law, assist in most cases in defining whether and when a loss or outgoing has been incurred:

(a) a taxpayer need not actually have paid any money to have incurred an outgoing provided the taxpayer is definitively committed in the year of income. Accordingly, a loss or outgoing may be incurred within section 8-1 even though it remains unpaid, provided the taxpayer is 'completely subjected' to the loss or outgoing. That is, subject to the principles set out below, it is not sufficient if the liability is merely contingent or no more than pending, threatened or expected, no matter how certain it is in the year of income that the loss or outgoing will be incurred in the future. It must be a presently existing liability to pay a pecuniary sum;

(b) a taxpayer may have a presently existing liability, even though the liability may be defeasible by others;

(c) a taxpayer may have a presently existing liability, even though the amount of the liability cannot be precisely ascertained, provided it is capable of reasonable estimation (based on probabilities);

(d) whether there is a presently existing liability is a legal question in each case, having regard to the circumstances under which the liability is claimed to arise;

(e) in the case of a payment made in the absence of a presently existing liability (where the money ceases to be the taxpayer's funds) the expense is incurred when the money is paid.

Application to your circumstances

In your situation we are satisfied that you have a genuine desire and need to maintain or improve your skills and knowledge. The course undertaken, and the internship completed are designed to improve your skills in your field.

Despite a lack of written duty statements for the positions you occupied prior to undertaking this course you have supplied lists of duties and responsibilities.

The Commissioner accepts there is an identifiable nexus or connection between the course and your duties in each of the positions you occupied at Employer A prior to commencing your MBA studies.

The course undertaken was useful to your employment at the time and it has enough nexus with your employment duties as to justify deductibility.

Consequently, your self-education expenses for the course are sufficiently connected to your employment. The costs are therefore deductible under section 8-1 of the ITAA 1997 in the period before your resignation. This is except for the expenses that are considered private in nature as detailed below which are not deductible during the whole period you were studying.

However, after your resignation, you cannot claim deductions for your self-education expenses. The income from your XYZ fellowship is not assessable income. You were not conducting any income producing activity post your resignation. At the time of incurring the expenses post the resignation, the expenses do not have any connection to an income producing activity. Hence, the expenses would no longer be deductible.

Course fees and textbooks

You have demonstrated that the course of education has a nexus to your current employment. Therefore, as outlined in TR 98/9 you are allowed a deduction for your course fees and textbooks incurred in attending an educational institution under section 8-1 of the ITAA 1997.

Deductibility only applies for the period up to your resignation.

Airfares

You will incur the expense of airfares in travelling overseas to attend an educational institution; you will therefore be entitled to a deduction for these costs under section 8-1 of the ITAA 1997.

Documentation satisfying the requirements of section 900-15 or 900-120 of the ITAA 1997 is required to substantiate the expenses included in these claims.

Again, deductibility only applies for the period up to your resignation.

Laptop and mobile phone expenses

PS LA 2001/6 states that usage of electronic devices in relation to a course of self-education may be deductible where a nexus can be established between the device usage expenses and the income earning activity. However, any personal device usage (as well as by other occupants) must be considered when determining the work-related percentage. Paragraph 9 states the two primary measures that can impact on work component percentage include:

•                    the time spent by the taxpayer using the device for work purposes compared to time spent by all occupants using the device for private purposes (time basis) and

•                    data used for work purposes compared to data used for private purposes of all occupants (data basis).

Where itemised accounts are not available, a reasonable estimate of work-related expenses, based on diary entries of usage over a period of one month, together with relevant paid accounts, will be acceptable for substantiation purposes.

Accordingly, your reasonable study related laptop and mobile phone expenses will be deductible to the extent that these expenses relate to study or other work-related activities.

Again, deductibility only applies for the period up to your resignation.

Health Insurance

Health insurance costs are generally considered to be a private expense. You are therefore not entitled to a deduction, under section 8-1 of the ITAA 1997, for your insurance expenditure as this is private in nature. Such insurance cost is not considered to be work related and hence have been classified as private expenditure which cannot be deducted.

Car Expenses

Car expenses are generally considered to be a private expense. You are therefore not entitled to a deduction, under section 8-1 of the ITAA 1997, for your expenditure as this is private in nature. Again, such vehicle expenses are not related to work related activity and hence have been classified as private expenditure which cannot be deducted.

Foreign visa

Section 8-1 of the ITAA 1997 allows a deduction for any loss or outgoing to the extent to which it is incurred in gaining or producing your assessable income however it will not be allowed if the expense is of a private or domestic nature.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47, the High Court stated that:

'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income.'

The cost of applying for a visa to enter a foreign country is considered private in nature. The expense was not incidental and relevant to your current employment duties and was not incurred in the course of gaining or producing your assessable income. You are not entitled to a deduction for the costs associated with your foreign visa under section 8-1 of the ITAA 1997.

Accommodation and food

Whilst overseas, you will incur accommodation, food and personal expenses. Expenditure on accommodation and food ordinarily has the character of a private or domestic expense. However, the occasion of the outgoing may operate to give the expenditure the essential character of an income-producing expense. Paragraph 89 of TR 98/9 outlines:

Where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meals expenses incurred are deductible under section 8-1. (Examples include an overseas study tour or sabbatical, a work-related conference or seminar or attending an educational institution.) They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature because its occasion is the taxpayer's travel away from home on income-producing activities.

However, where it is considered that a taxpayer has established a new place of residence, the accommodation and food expenses will retain their private nature and will not be deductible.

TR 98/9 states:

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, 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.

•                    The fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private 'living expenses' in a series of Board of Review decisions: Case N13 13 TBRD (NS) 45; 10 CTBR (NS) Case 98; Case N16 13 TBRD (NS) 65; 10 CTBR (NS) Case 99; Case N19 13 TBRD (NS) 76; Case N20 13 TBRD (NS) 79; and

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

In your case you will be overseas over a period of approximately X months. You were staying in long term accommodation. Therefore, you are not entitled to claim a deduction relating to accommodation, meals and personal expenses as you have established a new home during that period. In these circumstances, expenditure is private in nature and not allowable under section 8-1 of the ITAA 1997.

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