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Ruling
Subject: Self Education deductions
Are you entitled to claim a deduction for university fees, study equipment, text book costs and travel to and from university?
No.
Relevant facts
You receive a living allowance, incidental allowance and a study allowance from an employer under a scholarship contract. Tax is withheld from these payments and you have received a PAYG payment summary.
You have not yet worked for the employer.
Reasons for decision
Summary
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.
Detailed reasoning
Taxation Ruling TR 98/9 discusses 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; (1961) 8 AITR 406).
Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, a deduction is allowable.
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 (see FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541; and paragraphs 15, 48 and 62 of TR 98/9).
In your case, you do not earn any employment income from the employer. Therefore, at the time you incurred your expenses, your studies will not be undertaken to maintain or improve an existing skill or knowledge used in your current income earning activities. Nor can it be said that the subject of your studies objectively led to, or was likely to lead to, a future increase in your income from your current income-earning activities.
The expenses associated with the activities you undertook as part of your scholarship are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and thus not deductible as self education expenses.