Edited version of private ruling

Authorisation Number: 1011739555115

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Ruling

Subject: Decline in value of a computer used for self education course

Question 1

Will the decline in value of a computer be an allowable deduction as self education expenses?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

Year ended 30 June 2011

Relevant facts and circumstances

You are a resident of Western Australia.

You are enrolled in a Bachelor of Law degree at a university in New South Wales.

The course is a web based course due to the distance between your residence and the university campus.

The computer is needed to complete assignments and for other study materials.

You have stated that the computer will be used solely for the study course purposes.

The duties in your position involve preparing Court documentation, attending Court, presenting cases before the Court, and addressing the Court in relation to sentencing.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 40-25

Income Tax Assessment Act 1997 Section 40-30

Income Tax Assessment Act 1997 Section 40-80

Reasons for decision

Summary

The law degree being undertaken at the university will be accepted as an allowable course of study.

The decline in value of the computer will be an allowable deduction to the extent that the computer is actually used in an allowable course of study.

Detailed reasoning

Section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) allows you to deduct an amount equal to the decline in value of a depreciating asset that you held during the year of income. However, the section requires you to reduce the deduction by the proportion of the use of the depreciating asset that is not for a taxable purpose.

Section 40-30 of the ITAA 1997 defines a depreciating asset to be an asset that has a limited effective life and can reasonably be expected to decline in value over time.

Section 40-80 of the ITAA 1997 states that if a depreciating asset's cost is under $300 and is not used in carrying on of a business, then the decline in value will be the cost of the asset.

Section 8-1 of the ITAA 1997 allows you to deduct expenses incurred in earning assessable income, provided that the expenses are not capital, private or domestic in nature.

Taxation Ruling TR 98/9 deals with when self education expenses can be an allowable deduction.

Paragraph 13 of TR 98/9 states that if a 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 self-education expenses are allowable as a deduction.

Paragraph 22 of TR98/9 states that a deduction is allowable under section 40-25 of the ITAA 1997 for depreciation of items of plant or articles used for the purpose of producing assessable income. If the subject of self-education enables a taxpayer to maintain their skill or knowledge or is likely to lead to an increase in income from their current income-earning activity, depreciation of items used for self-education purposes is allowable. For example, depreciation of technical instruments and equipment, computers, calculators, professional libraries, filing cabinets and desks is allowable, where the self-education satisfies the principles outlined in paragraphs 13 and 14.

Paragraph 37 of TR 98/9 expands on paragraph 13. In FC of T v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348, the High Court held that expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was allowable under section 8-1. All three Judges recognised that the tour expenses were relevant to the activities by which Mr Finn was currently producing income. Kitto J found (106 CLR at 69; 12 ATD at 352) that the tour was incidental to the proper execution of the duties of Mr Finn's office because:

'Its professional status implied an obligation of progressive acquaintance with a living and developing art. It was therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add ... to his knowledge and understanding of architectural achievements and trends overseas ...'.

In your case, the university course being studied is a law degree, which is relevant to your current employment that requires you to prepare Court documents and also to attend Court. The principle in Finn's case is therefore directly applicable to your current situation as a law degree is relevant to these activities currently undertaken in your current position. Therefore the course of study would be an allowable course of study for the purposes of TR 98/9, so any relevant expenditure would be deductible under section 8-1 of the ITAA 1997, or any other relevant section of the Act.

Your ruling request was specifically directed at whether the decline in value of a computer used in the course of education will be an allowable deduction. Paragraph 79 of TR 98/9 allows the proportion of the decline in value of the computer that is related to an allowable course of study to be an allowable deduction.

If the computer cost is less than $300, then the proportion of the overall cost that the computer is used for the allowable course of study purposes is an allowable deduction under section 40-80 of the ITAA 1997.

If the computer cost $300 or more, than the proportion of the decline in value, based on the effective life of the computer, that the computer is used for the allowable course of study purposes is an allowable deduction under section 40-25 of the ITAA 1997.

In your ruling request, you have estimated that the computer will be used only for the allowable course of study. Under this scenario, there is no use of the computer other than for a taxable purpose, so this would mean that all of the decline in value would be an allowable deduction for the relevant year of income.

Further issues for you to consider

It should be noted that even though you have estimated that the computer to be used solely for the allowable course of study, this should be reviewed each year so that the proportion of the decline in value actually claimed reflects what the computer was actually used for during that particular financial year.