Edited version of private ruling

Authorisation Number: 1011667428945

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Ruling

Subject: Self-education expenses

1. Are you entitled to a deduction for self-education expenses?

Yes.

2. Are you entitled to a deduction for accommodation and meal expenses you will incur in connection with your stay in a long-term accommodation?

No.

3. Are you entitled to a deduction for your share of the accommodation and meal expenses you will incur, while staying in a temporary accommodation on arrival?

Yes.

4. Are you entitled to a deduction for travel expenses including accommodation and meal expenses between your home city and another city at the start and conclusion of your sabbatical program?

Yes.

5. Is a deduction allowable for relocation expenses you will incur whilst undertaking your sabbatical program?

No.

This ruling applies for the following period:

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling, and

· letter with attached copy of your job description and excerpt from your Workplace Agreement.

You are a professional working in a specialised area.

Your key duties are outlined in the job description which forms part of this arrangement.

You intend to undertake a postgraduate research degree in another city as part of your sabbatical program in 2011. You are eligible for six months sabbatical leave and also six months of long service leave.

The proposed program of study has been approved by your employer.

You will be on full pay throughout the period of study.

To complete the course, you will need to move to another city with your family.

Your children will attend schools in that city.

You will transport limited household furnishings from your family home to another city and the rest will be in storage for 12 months. You state that this will make your family home suitable for rental during this period.

You will stay in a temporary accommodation on arrival and rent a long-term accommodation for the balance of the time in another city.

You intend to rent your family home while you are undertaking your study in another city.

You will return to your position when you complete your study.

You are to provide a report on the sabbatical activities to your employer within one month of return to your normal duties.

You and your family will return to your family home upon completion of your sabbatical program.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 28

Income Tax Assessment Act 1997 Section 28-12

Income Tax Assessment Act 1997 Section 26-30

Income Tax Assessment Act 1936 Section 82A.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

You are entitled to a deduction for self-education expenses whilst undertaking your sabbatical program as there is a direct nexus between your self-education expenses and your current employment duties.

However, expenses that are inherently private and domestic in nature are not allowed as a deduction such as expenses you will incur on:

· long-term accommodation and associated meal expenses

· relocation expenses, and

· expenses that are incurred by your spouse and your children.

Detailed reasoning

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, or relate to the earning of exempt income.

In Taxation Ruling TR 98/9, self-education expenses are considered deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income-earning activities, and the self-education enables the taxpayer to maintain or improve that skill or knowledge.

The types of self-education expenses that are generally allowable are noted at paragraph 23 in TR 98/9. These include:

· course or tuition fees of attending an educational institution and/or work-related seminar or conference

· the cost of text books, stationery, and professional and trade journals

· airfares incurred on study tours, attending an educational institution or work-related seminar or conference

· interest incurred on borrowed monies where the funds are used to pay for deductible self-education expenses (this must be considered separately in each income year because a change in circumstances, such as a change of employment, may mean the necessary connection no longer exists), and

· 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, provided the taxpayer has not established a new home at the location of the self-education.

In your situation, it is accepted that your sabbatical program will maintain or enhance the skills that are required in the performance of your current employment duties. The objectives and contents of the program are relevant to the activities by which you derive your assessable income. Therefore, there is a direct nexus between your self-education expenses and your current employment duties.

Consequently, the self-education expenses you will incur relating to your sabbatical program such as:

· return travel to and from your hometown to another city to meet with your supervisors and plan your research program

· return travel to your hometown living in another city on several occasions to negotiate detail of the progress of your research

· return travel from your accommodation to the university campus

· tuition fees

· computer software, and

· textbooks

are allowable deductions under section 8-1 of the ITAA 1997.

However, to determine whether expenses relating to accommodation and meals are self-education expenses, we need to establish whether a new home has been established.

Accommodation and meals

Paragraph 93 lists the key factors to be taken into account when determining whether a new home has been established. They 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, example - 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.

There is no one single factor or test which can determine whether or not a new home has been established, each case needs to be determined by its own facts and individual circumstances.

In your case, you will remain in another city for 12 months. Your family will accompany you and your children will attend school in another city.

You will transport limited household furnishings from your hometown to another city and the rest will be in storage for 12 months. You state that this will make your family home suitable for rental during this period.

You will stay in a temporary accommodation on arrival and rent a long-term accommodation for the balance of the time in another city.

You will be travelling to your hometown on several occasions to negotiate detail of the progress of your research.

From the facts provided, the property you will be settling in for a significant period of time is considered to be properly characterised as being your new home while you are in another city. Therefore, you are not entitled to a deduction for accommodation and meal expenses you will incur in another city as they are not incurred in gaining or producing assessable income, but rather the expenses are a prerequisite to your income-earning activity. The expenditure is inherently of a private or domestic nature and is not allowable under section 8-1 of the ITAA 1997.

However, the temporary accommodation you will stay at for a short period on arrival will not become your new home. Therefore, you are entitled to a deduction for your share of this temporary accommodation and other associated meal expenses. Apportionment of these expenses is discussed further below.

Travel expenses including short-term accommodation and meal expenses

When determining the deductibility of travel expenses it is necessary to establish whether the purpose of the travel is related to the earning of assessable income. Where the purpose is primarily personal no deduction will be allowed. An employee travelling to commence deductible self-education study or returning at the conclusion of that study is entitled to a deduction.

In your situation, your road travel expenses from your hometown to another city at the start of your studies including costs for accommodation and meals are deductible as the purpose of your travel is related to the earning of your assessable income.

Division 28 of the ITAA 1997 sets out the rules for working out the amount of car expenses you can claim if you own or lease a car or hire a car under a hire purchase agreement. Section 28-12 of the ITAA 1997 provides that a deduction for car expenses can be made using one of the four methods.

However, it must be noted that only your own costs are deductible and not of other members of your family as they are considered private and domestic in nature. This is specifically provided for in section 26-30 of the ITAA 1997 which states that no deductions are allowed for expenses relating to relatives of a taxpayer where that relative has no direct involvement in the earning of the assessable income.

Apportionment

Example 6 of TR 98/9 discusses the situation of short-term accommodation while on sabbatical type leave and is most applicable to your case:

Don travels to London to undertake a 3-week course of study to maintain and improve knowledge relevant to his income-earning activities. He stays in hotel accommodation until the end of the 3-week period when he decides he should extend his stay and complete a more extensive 6-month course of study. He rents an apartment and arranges for his family to join him in London.

Expenditure on accommodation during the initial 3-week period is deductible as Don is away from home. However, depending on all the relevant facts, Don may be considered to have established a new home for the period of his stay in the apartment with his family.

There are generally two types of accommodation available while travelling.

Hotel/motel style accommodation, usually favoured by short-term travellers, is that in which the cost is dependent on the number of persons staying in the accommodation. For this type of accommodation, the marginal rate, whereby the taxpayer is allowed a deduction for the single room rate (for one person), is the most appropriate method of apportionment (Case R2 84 ATC 106; 27 CTBR (NS) Case 53.

Apartment-style accommodation, usually favoured by those travelling for a longer period, is that in which a set rate is charged per period regardless of the number of persons staying in the accommodation. For this type of accommodation, the Commissioner considers that the most appropriate apportionment is based on the actual use which the taxpayer had made of the apartment. For example, if a taxpayer, their spouse and three children share a three-bedroom apartment then the amount deductible to the taxpayer would be 1/3^rd of the cost of the apartment (Case S80 85 ATC 589; 28 CTBR (NS) Case 88, Case V15 88 ATC 177; AAT Case 4075 (1988) 19 ATR 3147).

In your situation, as you will be accompanied by your spouse and children, we consider the most appropriate apportionment would be to allow a deduction for accommodation expenses to the extent of the single room rate (for one person) while staying in hotel/motel style accommodation, and a percentage of the total cost of the apartment-based on your use, when staying in apartment-style accommodation.

Relocation expenses

Taxation Ruling IT 2614 examines the deductibility of relocation expenses. The ruling states that expenses incurred in relocating to take up an appointment with a new or existing employer are not allowable deductions as they are private or domestic in nature. This is so, regardless of whether an allowance has been paid, or if the relocation was involuntary. Taxation Ruling IT 2481 also discusses this expense. At paragraph 9 the ruling states the expenditure is not incurred in gaining or producing income and is not deductible as the taxpayer is not travelling on work, but to work.

In Fullerton v. Federal Commissioner of Taxation (1991) 32 FCR 486; 91 ATC 4983; (1991) 22 ATR 757, the taxpayer worked for the Queensland Forest Service (QFS) as a professional forester for over 20 years. In that time, QFS transferred him to a number of different locations. As a result of a reorganisation, his position ceased to exist. He had no choice but to accept a transfer as he may have been retrenched. The QFS reimbursed a portion of the relocation expenses and the taxpayer claimed the remainder of his expenses as a tax deduction. It was held that the expenditure on the taxpayer's domestic or family arrangements was not an allowable deduction, even though the expenditure had a causal connection with the earning of income.

In Case U91 87 ATC 525, the taxpayer, a Commonwealth public servant, was transferred at the request of his employer from a State office to the central office of the department in Canberra. He was denied a deduction for expenses incurred in attempting to auction his house. It was held that the expenses were too remote from the income-producing process to be incurred in gaining or producing assessable income.

Therefore, whether the transfer is voluntary or at an employer's request, relocation expenses are not allowable deductions under section 8-1 of the ITAA 1997. They are considered to be incurred prior to gaining assessable income, not in carrying out the duties of employment. That is, the expenses are a prerequisite to earning that income and consequently are of a private nature. Whether an employee is commencing a new employment or transferring within an existing employment, the relocation expenses remain private in nature and are not deductible.

In your case, although you will not incur expenditure in relocating to take up new employment or transferring within an existing employment, the same principles above apply when relocating to a new location when undertaking deductible self-education expenses.

Therefore, you are not entitled to a deduction for relocation expenses including removal and storage expenses, and any travel expenses in arranging your accommodation.

We also acknowledge that when you return to your hometown you will resume your role with the your employer. However, this does not alter the nature of the expense which is private in nature. Accordingly, any relocation expenses you will incur on your return to your hometown are not allowable deductions.

Other information

Limit to the deductibility of self-education expenses

It should be noted that in certain circumstances, self-education expenses incurred in connection with a prescribed course of education may be reduced by up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936 (ITAA 1936).

An explanation on how section 82A of the ITAA 1936 operates in relation to working out your self-education expenses is provided at pages 36 to 38 of Tax Pack (NAT 0976) and paragraphs 119 to 155 of TR 98/9. This publication and ruling can be accessed by visiting our website.