Edited version of private advice

Authorisation Number: 1052147891901

Date of advice: 28 July 2023

Ruling

Subject: Self-education expenses - sabbatical

Question 1

Are you entitled to a deduction for self-education expenses incurred in association with your sabbatical leave listed in Group A under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that the expenses were not reimbursed by your employer??

Answer

Yes. If you possess the required substantiation for the expenses you incurred you can deduct the items in Group A. The total deduction amount claimed must subtract $X from that amount as your employer has reimbursed you this amount.

Question 2

Are you entitled to a deduction for self-education expenses incurred in association with your sabbatical leave for a foreign visa under section 8-1 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ended XX XXXX 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You were employed as a Professor and a Specialist.

Your work duties include academic teaching, research, research training, leadership and service.

You took sabbatical research to teach and mentor doctorate students at several foreign universities and institutes.

You departed Australia on XX XXXX 20XX on sabbatical leave. Your sabbatical leave ended in XXXX 20XX and you returned to Australia on XX XXXX 20XX.

When you were on sabbatical your spouse occasionally accompanied you at each location.

You maintained your home in Australia throughout your sabbatical leave. Your children lived at the property and you continued to pay ownership expenses.

You stayed in temporary accommodation for several months at a time at each overseas location.

You provided a table which lists expenses incurred on the sabbatical leave. This has been grouped below:

Group A

•         Accommodation and food

•         Travel expenses

•         Airfares

•         Fuel expense

You also incurred the expense of acquiring a visa to enter an overseas country

Your employer provided $X in funding towards sabbatical costs. You did not receive any other reimbursement or allowance by anyone for expenses incurred in relation to your sabbatical leave.

You provided an explanation of how each work duty is connected to your income earning activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

Are you entitled to a deduction for self-education expenses incurred in association with your sabbatical leave in Group A, under section 8-1 of the ITAA 1997 to the extent that the expenses were not reimbursed by your employer??

Summary

Yes. You are entitled to claim a deduction for the costs you incur on your sabbatical leave as detailed in Group A in the facts. The total deduction amount claimed must subtract $X from that amount as your employer has reimbursed you this amount.

Detailed reasoning

Self-education expenses incurred in attending self-paced learning and study tours including sabbatical (whether within Australia or overseas) can be deductible under section 8-1 of 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.

The sabbatical leave will maintain and improve your academic teaching, learning, research, and leadership skills you need to perform your role and there is an identifiable nexus or connection between the sabbatical research and your employment. Having considered the sabbatical leave connected to your employment, we must consider whether the specific expenses you have mentioned are deductible.

Accommodation and food

Whilst overseas, you incurred accommodation and food 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 of the ITAA 1997. 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 frequency and duration of return trips to the previous location.

In your case you stayed in temporary accommodation in several overseas countries over a period of several months. Your spouse occasionally accompanied you and you continued to maintain your home in Australia. The length of time you stayed overseas in multiple locations indicated that you did not establish a new home for that period. Therefore, you are entitled to a deduction for your accommodation or meal expenses while living overseas, as the expenses are incurred in gaining or producing assessable income.

Travel expenses

You incurred costs (fuel, bus fares, bus card excess baggage fee, ride-sharing) travelling in various overseas countries. Paragraph 124 of TR 98/9 provides that they are part of the necessary cost of participating in the sabbatical research. We do not consider such expenditure to be of a private nature because its occasion is the travel away from home on income-producing activities.

Airfares

Paragraph 111 of TR 98/9 further provides that airfares incurred on overseas study tours or sabbatical, on work related conferences or seminars or attending an educational institution are deductible under section 8-1 of the ITAA 1997. They are considered part of the necessary costs of participating in the tour or attending the conference or seminar or the educational institution.

Question 2

Are you entitled to a deduction for self-education expenses incurred in association with your sabbatical leave for a foreign visa under section 8-1 of the ITAA 1997?

Summary

No. You are not entitled to claim a deduction for the costs of you incurred when acquiring the foreign visa on your sabbatical leave.

Detailed reasoning

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 purpose of obtaining a visa is to allow you to enter and stay the overseas country. The expense is not considered to be incurred in the course of gaining or producing your assessable income. Therefore, the expense is private in nature and is not an allowable deduction under section 8-1 of the ITAA 1997.

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