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Ruling

Subject: Studies program

Question 1

Are you entitled to a deduction for your domestic and international airfares and car hire when travelling for work related purposes?

Answer

Yes.

Question 2

Are you entitled to a deduction for your work related conference registration fees?

Answer

Yes.

Question 3

Are you entitled to a deduction for your accommodation and meal expenses while undertaking your studies program activities?

Answer

Yes.

Question 4

Are you entitled to a deduction for your accommodation and meal expenses while holidaying and site seeing?

Answer

No.

Question 5

Are you entitled to a deduction for the cost of meals for your guest or work colleague?

Answer

No.

Question 6

Are you entitled to a deduction for the decline in value of depreciating assets used for income producing purposes?

Answer

Yes.

Question 7

Are you entitled to a deduction for currency exchange fees that relate to the payment of your work related expenses?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are an employee.

You have been accepted into a X month studies program. You will be on paid leave during this time.

The study program allows you leave from your employment duties to achieve the various work related objectives

The program will increase your professional skills and increase your employer's capability for successful competitive grant schemes and publications.

To achieve these objectives you will travel interstate and internationally, purchase specific equipment, attend conferences and forge new relationships with field experts.

During your leave you will be displaying, marketing and promoting your employer's strengths.

Your meetings have been prearranged with various leaders in your field recommended by your employer. Meetings will be for at least X hours. Meetings will include feedback on your research projects and PhD studies.

You will spend some weeks overseas with your main stay at your employer's centre in country A.

Here you will receive professional support and work on your research and writing articles.

Your spouse will be joining you for part of the overseas stay. You will be on annual leave for X to X weeks of your time overseas to holiday with your spouse.

You will incur costs for your domestic and international airfares, car hire, accommodation, meals and currency exchange fees. You will also incur costs for networking dinners with guests.

You will purchase equipment to assist you with your work related and research activities.

You will receive a small travel grant from your employer. No other allowances or reimbursement of costs will be given to you.

You will prepare a written report on your work carried out during your studies program to your employer after completion.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Division 32.

Income Tax Assessment Act 1997 Division 40.

Reasons for decision

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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478 (Lunney's case)),

· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47 (Ronpibon's case)), and

· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

A deduction is only allowable if an expense:

· is actually incurred,

· meets the deductibility tests, and

· satisfies the substantiation rules.

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).

Taxation Ruling TR 98/9 considers occasions where accommodation expenses and other travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity or away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997.

Airfares and car hire

TR 98/9 states that airfares incurred on overseas study tours or sabbatical are an allowable deduction under section 8-1 of the ITAA 1997.

Taxation Ruling TR 98/9 discusses the apportionment of overseas travel expenses where there is a dual purpose for the travel. As highlighted in TR 98/9, if the travel was undertaken equally for income earning purposes and for private purposes the expenses would be apportioned equally. However, if the private purpose is merely incidental to the main income-earning purpose, apportionment is not appropriate.

In your case, although you will have some holiday time while overseas, as the main purpose of your travel is for work related purposes, you are allowed a deduction for the total cost of your domestic and international airfares incurred.

You are also entitled to a deduction for car hire costs where the car is used for work related purposes. Where the car is used for both work related and private purposes, only the work related portion is an allowable deduction.

Conference fees

A deduction is allowable for the fees paid to attend work related conferences.

Accommodation and meal expenses

Accommodation and meal expenses are deductible under section 8-1 of the ITAA 1997 when you are travelling in the performance of your duties.

In your case your domestic and overseas travel is directly in relation to your income earning activities. Your accommodation and meal expenses incurred while undertaking your studies are sufficiently connected to your assessable income and are an allowable deduction.

However, the accommodation and meal expenses incurred while on holidays and site seeing is regarded as private in nature and not an allowable deduction.

Please note, as you do not receive a daily travel allowance there are no substantiation exceptions or set amount that is automatically allowed as a deduction. Before you claim your allowable accommodation and meal expenses please ensure you have the necessary receipts or documentary evidence to substantiate your expenses incurred.

Meals for guests or work colleagues

Division 32 of the ITAA 1997 overrides the general deduction section 8-1 of the ITAA 1997 with respect to entertainment. Section 32-5 of the ITAA 1997 provides that, to the extent that you incur a loss or outgoing in respect of providing entertainment, you cannot deduct it under section 8-1 of the ITAA 1997.

Section 32-10 of the ITAA 1997 provides the meaning of entertainment to include entertainment by way of food or drink. Business lunches and social functions are examples of what is entertainment. Subsection 32-10(2) of the ITAA 1997 states that you are taken to provide entertainment even if business discussions or transactions occur.

There are some exceptions to the general rule which allows deductions for certain employers. However, as you are not an employer these exceptions do not relate to you. Taxation Ruling TR 97/17 provides further details in relation to the allowable expenses when providing entertainment by way of food or drink.

In your situation, the payment of dinners or lunches for guests when networking is regarded as entertainment. Although work related discussions occur at these outings, the food and drinks expense for a guest or work colleague is not an allowable deduction.

Travel expenses for your spouse

A deduction is not allowable where a family member accompanies you while you travel (section 26-30 of the ITAA 1997).

Therefore the travel, accommodation and meal costs associated with your spouse are considered private in nature and are not deductible under section 8-1 of the ITAA 1997.

Depreciation

Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose.

When calculating your allowable deduction for your depreciating assets, you reduce your deduction for the decline in value to the extent that it was used for private or other non-taxable purposes.

You are entitled to an immediate deduction for the cost of your depreciating assets which cost $300 or less and are used for an income producing purpose during the income year.

For further details in calculating your allowable deduction for the decline in value of depreciating assets, please refer to the booklet Guide to depreciating assets which can be found on the Australian Taxation Office website www.ato.gov.au.

Currency exchange fees

Bank fees incurred on the payment of a deductible work related expense is an allowable deduction under section 8-1 of the ITAA 1997.

Similarly where your currency exchange fees relate to the payment of your deductible expenses, the associated fees are an allowable deduction. However no deduction is related to the fees paid on money used for private purposes.

Other information

Please ensure you keep the necessary travel records and documentary evidence of your work related expenses incurred.