Edited version of private ruling

Authorisation Number: 1011492731797

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Ruling

Subject: Self-education expenses

1. Are you entitled to claim a deduction for self-education expenses incurred in completing the pre-requisite subjects to a Master degree?

No.

2. Are you entitled to claim a deduction for self-education expenses incurred in completing a Master degree?

No.

3. Are you entitled to a deduction for a Higher Education Contributions Scheme-Higher Education Loan Programme (HECS-HELP) and full- fee paying student Higher Education Learning Programme (FEE-HELP) loans?

No.

4. Are you entitled to deductions for self-education interest charges resulting from your HECS-HELP and FEE-HELP loans?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You are working on a casual basis.

You are currently undertaking a bachelor degree.

You do not intend to complete the bachelor degree but you will complete the pre-requisite subjects for a Master degree.

You have sought assistance through HECS-HELP to pay for your course fees in undertaking your bachelor degree.

You will apply for FEE-HELP assistance to pay for your course fees in undertaking your Master degree.

You do not receive any allowances.

Your employer encouraged you to undertake the course by offering you employment upon completion of your studies.

Your employer provides you with study leave.

You study during your own and work time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 26-20.

Reasons for decision

Summary

It is considered that the pre-requisite subjects to a Master degree you are undertaking and the Master degree have insufficient connection to the earning of your assessable income. Accordingly, the self-education expenses associated with undertaking your studies are not an allowable deduction.

These include self-education costs such as your HECS-HELP and FEE-HELP loans, repayments to reduce these loans and any other charges associated with these loans.

Detailed reasoning

Self-education expenses

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, relate to the earning of exempt income or are precluded from deduction by another provision of this Act.

Taxation Ruling TR 98/9 states self-education expenses are allowable as a deduction if your current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables you to maintain or improve that skill or knowledge.

However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayer's current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. 

The issue of self-education expenses and casual employment was considered in Gupta v. FC of T 2002 ATC 2319; (2002) 51 ATR 1205 (Gupta's Case). In that case the taxpayer commenced a Bachelor of Computer Science degree, and subsequently began casual work at the university's School of Computing and Information Technology as a computer laboratory assistant. After completing his course he remained in the employ of the university as a tutor and researcher. The Administrative Appeals Tribunal held that the essential character of the expenses was to qualify the taxpayer through obtaining his degree so that he could get ahead within the Information Technology industry to a more highly paid position. They accepted that his experience gave him the knowledge necessary for the casual university work, which was relatively low-skilled and routine. They found that on completion of the degree, however, the taxpayer would have acquired more highly developed skills, qualifying him to undertake more responsible and demanding work than previously. It was held that the expenses were not incurred in gaining or producing the taxpayer's assessable income from casual work at the university that income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon.

Paragraph 57 of TR 98/9 gives the following example of the deductibility of self-education expenses where casual employment is undertaken by a student:

Example: Shannon, who is undertaking a 4-year university degree in mining engineering, takes a job as a casual employee with a mining company during the end of year holiday period. It is the company's policy to take only students who are pursuing relevant studies. Shannon is not entitled to a deduction for the cost of the course because the study is designed to get future employment in the field. It is incurred at a point too soon.

Your situation

Your circumstances are similar to those in the above example and comparable to the taxpayer in Gupta's Case, in that you are employed casually in the same field that you are studying at university.

It is considered that your study is not to enable you to maintain or improve skill or knowledge in your casual employment; rather, this income is incidental to your studies. Your self-education expenses are incurred to secure employment in a new income-earning activity in the future and they are incurred at a point too soon. On completion of your studies you will be allowed to carry out duties that you are not allowed to do in your current position. Consequently, your self-education expenses are not deductible under section 8-1 of the ITAA 1997.

HECS-HELP

Paragraph 26-20(1)(ca) specifically prevents a deduction for student contribution amount paid to a higher education provider in relation to HECS-HELP.

In your case, your course fees in undertaking the pre-requisite subjects to a Master degree are paid under the HECS-HELP system. Consequently, you are not entitled to claim a deduction for incurring these fees.

FEE-HELP

FEE-HELP was introduced by the Commonwealth to provide assistance to students who are not supported by the Commonwealth to pay course fees. If the student meets the requirements for eligibility for a deduction for self-education expenses the whole course fee is deductible. The student is not prevented from claiming a deduction because assistance to pay all or part of the course fee was received under FEE-HELP.

It should be noted that if the taxpayer's course has no connection with their current income-earning activities then their course expenses would not be deductible under section 8-1 of the ITAA 1997. The fact that the taxpayer may have a loan under FEE-HELP would not change this. Therefore, in your case as there is not a sufficient connection with your current income-earning activity and your studies, the course fees you will incur in undertaking a Master degree would not be deductible.

Interest charges

Paragraph 26-20(1)(cb) of the ITAA 1997 specifically prevents a deduction for repayments of HECS-HELP and FEE-HELP loans.

The outstanding loans are indexed to keep pace with inflation. The annual indexation imposed on such loans is not an expense incurred of itself but is added to the debt rather than paid. As such it would not be deductible under section 8-1 of the ITAA 1997 as it is not a payment made or an expense incurred. In any event even if there were a payment, section 26-20 of the ITAA 1997 would deny any deduction.

In your case, you are seeking to claim deductions for self-education interest charges resulting from your HECS-HELP and FEE-HELP loans. These amounts are the indexation amounts that are applied to your HECS-HELP and FEE-HELP loans and not interest charges as such. Repayments to reduce your HECS-HELP and FEE-HELP loans which include the indexation amounts are not an allowable deduction.

Should you however make voluntary payments using funds from a financial institution, for example, interest paid on the borrowed funds for the purpose of making such payments may be deductible under section 8-1 of the ITAA 1997 where the education costs would themselves be deductible.