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Ruling

Subject: Commonwealth supported university place

Question 1

Are the reduced tuition fees associated to a Commonwealth supported place in university deductible?

Answer

No.

Question 2

Are the university tuition fees otherwise deductible?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You were reimbursed university fees for one year for the commencement of studies in the university.

The letter of offer you received stated that to ensure these payments do not attract Fringe Benefits Tax (FBT) your course must relate 100% to your current job description.

You were advised by your employer that because the fees you have claimed were for a Commonwealth supported course the ATO does not allow for any further tax deduction to the employee and they required you to reimburse their FBT obligation.

You have provided tax invoices you received from the university which show the course fees were paid by HECS-HELP.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 paragraph 26-20(1)(ca).

Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Commonwealth supported tuition fees and tax deduction

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, relate to the earning of exempt income or a provision of the ITAA 1997 prevents it.

Taxation Ruling TR 98/9 explains at paragraph 24 that HECS fees payable for courses supported by the Commonwealth government under HECS (now known as HECS-HELP) are not an allowable deduction under section 8-1 of the ITAA 1997 as another section 26-20 of the ITAA 1997 prevents a deduction for the HECS payment.

Specifically, paragraph 26-20(1) (ca) of the ITAA 1997 prevents a deduction for payments made under the Higher Education Support Act 2003 (HESA 2003). This includes HECS-HELP fees paid after the 1 January 2005. This is whether the fees are paid up front as a discounted amount, or deferred for payment at a later date in an annual income tax assessment.

In your case, your study is a HECS-HELP based course and therefore you are not entitled to claim a deduction in respect of the course fees under section 8-1 of the ITAA 1997.

Otherwise deductable rule

The taxable value of an expense payment fringe benefit may be reduced under section 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to the extent that the 'otherwise deductible' rule (ODR) applies.

The ODR applies when the recipient of the benefit is the employee. Furthermore, the ODR applies where the employee receiving the benefit would have been entitled to a income tax deduction for the expenditure had it not been paid or reimbursed by the employer

Sub-section 26-20 (1) of the ITAA of the ITAA specifies you cannot deduct under this Act:

(ca) a student contribution amount within the meaning of the Higher Education Support Act 2003 (HESA 2003) paid to a higher education provider (within the meaning of that Act); or

(cb) a payment made to reduce a debt to the Commonwealth under Chapter 4 of that Act; or

(cc) a payment made to reduce a debt to the Commonwealth, or to a participating corporation, under Chapter 2B of the Social security Act 1991 or Part 4A of the Student Assistance Act 1973.

Sub-section 26-20(2) states;

Sub-section (1) does not stop you deducting expenditure you incur in providing a fringe benefit.

Although the reimbursement of the university fees is a fringe benefit and is therefore deductible to the employer, this does not satisfy the requirements of section 24 of the FBTAA. To be 'otherwise deductible' the employee must be entitled to an income tax deduction. As you are not entitled to an income tax deduction the taxable value of the fringe benefit cannot be reduced under the 'otherwise deductible' rule.