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Edited version of your private ruling
Authorisation Number: 1011996293861
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Ruling
Subject: Self education expenses
Question 1
Are you entitled to a deduction for self education expenses?
Answer
Yes.
Question 2
Are you assessable on the scholarship you received?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You are employed as a lawyer.
Your employer granted you leave of absence for a period. A condition was expressed that your employment was suspended for the period and would recommence on your return date.
During the leave of absence you undertook a Masters level law course. You completed this course in approximately 10 months.
You were granted a scholarship to support your studies by your former university.
There were no requirements for you to fulfil in relation to the scholarship with either your former university or the university where you studied the Masters level law course.
You have recommenced working for your employer.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Subsection 6-5(2)
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.
Taxation Ruling 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).
In your case, you were employed as a lawyer when you took a leave of absence from your employer and undertook a Masters level law course. As your position was guaranteed and you have since returned to the position, we accept that the study was related to your current income earning activities. Therefore, you are entitled to a deduction for the cost of course fees, books and airfares.
Note
The self education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. An explanation on how this provision operates is provided at paragraphs 119 to 155 of TR 98/9, which can be accessed on our internet website at www.ato.gov.au.
Scholarship
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 scholarship to be exempt from income tax:
· you must be a full-time student at a school, college or university
· you must be in receipt of a scholarship and the scholarship must be provided principally for educational purposes, and
· there must be no condition that you be an employee of the scholarship provider or enter into any contract with the scholarship provider that is wholly or principally for labour.
As you satisfy all the above requirements, your scholarship income is exempt from tax.