Edited version of private ruling

Authorisation Number: 1011695660102

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Ruling

Subject: Deduction-self-education-overseas travel

Question 1

Are you entitled to claim a deduction for your overseas travel expenses?

Answer: No.

Question 2

Are you entitled to claim a deduction for the cost of educational resources purchased while you were overseas?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

The arrangement that is the subject of the private 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:

· your private ruling application

· a letter from your employer

· a tax receipt

· copies of travel itineraries

· a copy of an invoice for the purchase of a number of items

· a letter in response to a request for further information from the Australian Taxation Office.

You are employed as a teacher.

You travelled unaccompanied overseas.

You visited relatives and friends while overseas.

You used your leave entitlements to travel overseas.

Your reason for travelling overseas was to visit certain sites, particular museums, galleries and to view historical buildings to assist in consolidating a number of ideas you had for your students in their work in the classroom.

Your employer did not request you to travel overseas to undertake any specific task.

You did not receive any travel allowance or reimbursement for your travel expenses from your employer.

You did not organise any meetings or visits before travelling overseas.

You did not attend any meetings, conferences or seminars or undertake any courses of study while travelling overseas.

You did not provide a report to your employer in relation to the trip overseas.

You recorded details and documented each destination you visited and purchased a number of items while overseas.

You are requesting to claim expenses in relation to the overseas travel.

You have apportioned your travel expenses between private and work related activities.

You have kept a travel diary for the trip.

You have the relevant documents to substantiate your claims.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

You can claim a deduction for expenses incurred for educational resources used as part of your duties subject to apportionment. However, the airfares and accommodation, tour fees, gallery and museum entry fees, accommodation, meals and car hire expenses incurred when travelling overseas are not deductible as there is insufficient connection between the outgoing incurred and the gaining of your assessable income.

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.

To satisfy the first limb of section 8-1 of the ITAA 1997, the loss or outgoing must be relevant and incidental to the operations or activities from which the assessable income is produced: Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 8 ATD 431; (1949) 4 AITR 326. This principle is also expressed in terms of there having to be a sufficient nexus or connection between the outgoing and the production of assessable income. The occasions of the loss or outgoing should be found in whatever is productive of the assessable income or, if no assessable income is produced, what would have been expected to produce assessable income:

What is involved is a process of identifying the essential character of the expenditure to determine whether it is in reality an outgoing incurred in gaining or producing assessable income.

Taxation Ruling TR 98/9 provides the Commissioner's view on the deductibility of self-education expenses. It states that self-education expenses are incurred in gaining or producing assessable income if they are directly relevant to the person's employment activities or are likely to lead to an increase in income from those activities.

The ruling also states that the intention or purpose in incurring an expense can be an element in determining whether the whole or part of the expense is an allowable deduction.

The leading case for expenses of this nature is the High Court decision in Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60 (Finn's case).

That case involved a senior government design architect, who went on an overseas tour for the express purpose of studying current trends in architecture with a view to improving his prospects of future promotion. His employer requested that he travel to South America and reimbursed him for some of his expenses. The High Court found that the travel expenses were part and parcel of his employment. That connection was clear because his employer requested that he travel and provided financial assistance. The travel was also likely to lead to promotion.

To support your case you have referred to Case W75 89 ATC 686 (Case W75). In Case W75 the Administrative Appeals Tribunal (AAT) found that each trip was undertaken by the taxpayer primarily and principally in order to research and collect materials in relation to areas of learning directly related to her duties as a teacher of ancient history. The fact that the taxpayer incurred the expenses of her own volition while on paid leave from her employment and that being a dedicated teacher, she chose to engage in more research and preparation than may be undertaken by other teachers did not detract from the fact that the research and collection of materials was performed in the course of her employment as a teacher.

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. Ultimately 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 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 (Case Q83), 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 taxpayer's claim. They found that even though language teachers can, in the course of ordinary tourist activities, derive benefits as teachers, this fact does not translate tourist activities into business activities.

In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip, he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The AAT concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

In Case N37 81 ATC 191 (Case N37) the taxpayer was an art and craft teacher at a secondary school and embarked on a trip to Europe. The taxpayer's employer did not encourage the taxpayer to take the trip. The taxpayer believed that he would become a better teacher through being able to view the actual art works which he had previously only seen in photos and slides. The objection was disallowed as there must be a real connection between the outgoing and the taxpayer's income - it must be shown that the former had a direct effect upon the latter, or that the taxpayer undertook the trip because the terms upon which he was employed obliged him to do so. This connection had not been shown to exist in this case.

In Case Q57 83 ATC 307 (Case Q57), the taxpayer was a senior high school art teacher and undertook a trip to Greece and Crete. The taxpayer had already reached the maximum grading relevant to her qualifications and was not eligible for any further promotion nor increases in salary other than normal cost of living adjustments. The journey was undertaken by the taxpayer in order to update her knowledge and to keep abreast of art concepts so as to maintain and improve the quality and content of the subject being taught.

In the Board's opinion the taxpayer came across as a dedicated and no doubt capable teacher voluntarily incurring expenses for overseas travel with the intention of increasing academic knowledge so as to ultimately benefit her students. However, the Board considered that the costs associated with the travel were not incurred by the taxpayer in the process of carrying out her duties as a teacher and could not result in any increase in assessable income. The trip was undertaken as a matter of personal choice and the expenditure relating to it was of a non-deductible private nature.

In your case, you travelled overseas and visited a number of places of interests including galleries and museums. You also purchased a number of souvenirs, items and books while overseas.

Your case can be distinguished from Finn's Case as although your employer was supportive of you undertaking the travel, they did not specifically request that you take the trip or ask you to perform any specific tasks while on the trip. We acknowledge the school's appreciation of your effort to enhance the education provided to your students. However, your employer has not provided any financial support to you for undertaking the trip. Your circumstances also differ from those in Finn's Case in that no evidence has been provided that shows that the trip would likely result in an increase in your employment income.

Your circumstances have some similarities to those in Case W75 in that you voluntary undertook the trip while on paid leave and collected items to be used as teaching aids. However, there are also significant differences between your case and Case W75. In that case the taxpayer was a secondary school teacher who specialised in teaching ancient history and who chose specific sites to visit that had a direct relevance to the areas that were going to be taught in the school's ancient history course. She formulated an itinerary that would only include those sites. Any recreational activities undertaken on the trip were minimal.

In your case, a significant portion of your travel was undertaken on holiday tours. These tours are marketed to the general public and the itineraries of which include sites and locations that are of interest to any visitor, including museums, art galleries and cultural sites. These tours were not specifically designed to assist in the development of teachers. It is considered that any travel expenses incurred in undertaking these types of tours are inherently recreational and private in nature.

With regards to your other travel, you have not provided a detailed itinerary but have advised of some of the places you visited. All of these are places that may be of interest to any visitor or tourist. It is considered that your travel expenses in relation to this travel are also recreational and private in nature.

We acknowledge that your travel experiences were later used to influence the work of your students and that you purchased some items that were later used as teaching aids. However, this is not sufficient to transform the character of the travel expenses from private to work related in nature.

The circumstances of your travel are similar to the travel undertaken in the Taxation Board of Review cases noted above, specifically Case N37 and Case Q57, in that you voluntarily undertook the trip without any financial support or specific task to undertake for your school. Furthermore, there is no evidence to indicate it was a condition of your employment to travel overseas.

In addition, you have not undertaken any specific courses or attended any seminars in relation to your teaching profession to assist in maintaining or improving your teaching skills or arranged any special meetings with artists prior to departing Australia to travel overseas. Lastly, your income has not increased as a result of you undertaking the travel.

Your trip is considered to be predominantly private in nature and as such no deduction can be claimed for the airfares and accommodation, tour fees, gallery and museum entry fees, accommodation, meals and car hire expenses for the trip. There is insufficient connection between the outgoings incurred and the gaining of your assessable income as a teacher. As stated in Case Q83, the fact that a teacher can, in the course of ordinary tourist activities, derive benefits as a teacher, does not translate tourist activities into business activities.

Therefore a deduction for the expenses noted above is not available under section 8-1 of the ITAA 1997.

Educational Resources
The deductibility of work related expenses for teachers is discussed in Taxation Ruling is TR 95/14. Paragraph 205 of the ruling specifies that teaching aids purchased by teachers to be used in the course of carrying out their duties of employment are deductible to the extent they are not private, domestic or capital in nature. The items purchased must have a direct and relevant use in carrying out those duties. Examples of teaching aids include stationery, books and items used to conduct classes.

Accordingly, any books, souvenirs or items used to conduct classes are deductible to the extent they are used in your teaching activities.