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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011689222007

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Ruling

Subject: Self education expenses

Questions

Are you assessable on your scholarship income?

Answer: Yes.

Are you entitled to a deduction for overseas travel expenses?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

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.

You are a teacher.

Your employer requires its teaching staff to conduct Professional Development in the form of training/educational courses relevant to the staff's teaching practice. Staff appraisals and performance management also takes into account professional development.

You are currently undertaking a PHD research project.

You study for your PhD in your own time.

During the recent income year you travelled overseas on an around the world ticket to conduct research for your PHD. Of the total trip, only a small portion was spent in the relevant country.

During the trip you visited several museums, theatres, libraries and other centres.

You successfully applied for a research grant as a post-graduate student.

The grant went towards your travel costs.

You incurred travel expenses in excess of the scholarship amount.

The trip took place during school holidays apart from four days for which your employer granted you professional development leave.

You spouse accompanied you on your overseas trip.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. However, if an amount is exempt income, it is not included in the assessable income of a taxpayer (section 6-15 of the ITAA 1997).

Item 2.1A of the table in section 51-10 of the ITAA 1997 provides that, subject to the exceptions and special conditions contained within section 51-35 of the ITAA 1997, income received by way of a scholarship, bursary, educational allowance or education assistance by a full time student at a school, college or university is exempt from income tax.

For the grant or scholarship to be exempt from income tax: 

    · the taxpayer must be a full time student at a school, college or university;

    · the taxpayer must be in receipt of a scholarship and the scholarship must be provided principally for educational purposes; and

    · there must be no condition that the taxpayer be an employee of the scholarship provider or enter into any contract with the scholarship provider that is wholly or principally for labour.

In your case you were provided with a grant to assist you with expenses incurred while you completed your studies, therefore the scholarship was provided for educational purposes.

However, you must be a full time student for grant income to be considered exempt income. Therefore, the grant income you received while you were a part time student must be included in your assessable income.

Deductibility of work related expenses

Taxation Ruling TR 98/9 sets out the Commissioner's views in respect of self education expenses. It states that self education expenses are deductible under section 8-1 of the ITAA 1997 if they have a relevant connection to the taxpayer's current income earning activities. TR 98/9 also states that the self education expenses are allowable as a deduction if:

    · 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.

    · 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.

    · Expenses related to improving knowledge or skills are not of a capital nature.

A deduction is not allowable for self-education expenses if the subject of self- education is designed to get employment, to obtain new employment or to open up a new income-producing activity.

The essential character of the expenditure incurred is to be determined by an objective analysis of all the surrounding circumstances and reference to relevant case law.

In the Board of Review Case R47 84 ATC 380; (1984) 15ATR 824, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France.  The trip was not undertaken at the request of the taxpayer's employer.  She asserted that the trip increased her teaching skills.

The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher.  The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer.  Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter.

In Case Q83 83 ATC 418, the taxpayer, a high school French and Indonesian language teacher, travelled overseas with her husband. She claimed a deduction for travel expenses relating to time spent in France and Indonesia. The taxpayer conceded that promotion did not depend on travelling overseas.  The Taxation Board of Review disallowed the claim.

In Case U109 87 ATC 657, a science teacher who specialised in geology, joined a 17 day trip to Indonesia and also undertook a 53 day trip to Europe. The Administrative Appeals Tribunal upheld the Commissioner's decision to disallow the deductions on the grounds that the trip was recreational in character.

In AAT Case U54 87 ATC 354, a senior lecturer travelled overseas on a tour organised by the Australia-China Society.  The taxpayer argued that the trip would allow him to get up-to-date and adequate information in his field of academic interest, which would in turn increase his chance of advancement and help him to avoid the possibility of retrenchment.  The Administrative Appeals Tribunal found that the trip was seen to be essentially private and recreational in nature and no deduction was allowed for the cost of his overseas trip.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In your case, part of the purpose of your trip overseas was to research a particular country's literary field in connection with your thesis. The fact that the travel undertaken would enable you to improve your expertise in your areas of teaching thereby improving delivery of lessons does not in itself mean that the expenditure was incurred in gaining or producing assessable income.  As with the cases quoted above, your trip is seen to be predominantly of a personal nature and as such no deduction can be claimed for the overseas trip as there is insufficient connection between the outgoing incurred and the gaining of assessable income as a teacher.

The view that this trip was predominantly private in nature is also supported by the fact that your spouse accompanied you and of the total trip, only a small portion was spent in the relevant country.

Please note also that the overseas travel expenses are not deductible against your scholarship income. Paragraphs 71 to 77 of Taxation Ruling TR 98/9 express the view that self education expenses are not relevant and incidental to the receipt of income from educational assistance schemes where the scheme provides for payments in the nature of assistance. They are granted because a student is enrolled in a course of study and satisfies eligibility requirements.