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Ruling

Subject: self education expenses

Question

Are you entitled to a deduction for airfares and rent costs incurred for your overseas travel as self-education expenses?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

During the 2009-10 and 2010-11 financial years, you were a full time student studying at a university in Australia.

You went overseas on a student exchange program from the early 2010 to early 2011 to complete the final two semesters of your degree. These were completed at a university in Country A.

While you were studying both in Australia and overseas, you were in receipt of government education assistance payments.

The government education assistance was paid from early 2010 and ceased at the end of the 2010-11 financial year.

You were not required to pay tuition fees to the overseas university as these were covered by the Higher Education Contribution Scheme in Australia.

You paid for airfares to and from Australia to travel at the start and end of the exchange and also to return to Australia once during the exchange.

You incurred rent expenses when you stayed at a guesthouse for the duration of your stay overseas.

Prior to going overseas, you lived at home with your parents and you did not move out of the family home during the period you were overseas.

You have receipts and documentary evidence for the airfares and rent expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

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 to the extent that they are of a capital, private or domestic nature, or relate to the earning of exempt income.

In order to satisfy the requirements of section 8-1 of the ITAA 1997, there must be a close and immediate connection between the income and the expenditure incurred. The expenditure must be incurred 'in the course of' gaining or producing the assessable income (Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478).

A recent High Court decision, Commissioner of Taxation v. Anstis (2010) 241 CLR 443; (2010) 76 ATR 735; 2010 ATC 20-221 (Anstis case), held that self-education expenses were deductible against Youth Allowance income.

In the Anstis case, the taxpayer was in receipt of Youth Allowance. In order for the taxpayer to receive these payments, she was required to satisfy the activity test and in satisfying that test she was required to be enrolled in a course of education at an educational institution, undertaking at least three quarters of the normal amount of full-time study in respect of the relevant course and enable the Secretary to form the opinion that she was making satisfactory progress towards completing the course. In satisfying these requirements, the taxpayer had incurred expenses (for example student administration fees, textbooks and computer depreciation) for which she claimed a deduction against the Youth Allowance income.

It should be noted however, that while the Commissioner accepts the deductibility of similar expenses incurred by full-time students receiving Youth Allowance payments or similar payments, private expenses such as meal expenses and home to university travel costs continue to be non-deductible.

Your case can be likened to the Anstis case, in that during the 2009-10 and 2010-11 financial years, you were a full-time student in receipt of government education assistance for each financial year. In undertaking the study, you incurred expenses in satisfying the requirements in order for you to receive the government education assistance income. As such, it can be said that you incurred expenses in undertaking your degrees in order for you to retain your government education assistance income.

You applied for and were accepted on an exchange program to study at a partner institution of the Australian university. While the exchange is highly encouraged and promoted, it was not a mandatory part of your degree. However, you took part in the exchange to expand your experiences and increase your employability. You received a scholarship from the Australian university and also a monthly payment from the overseas university.

In taking part in the exchange, you incurred airfare and rent expenses for the time you were overseas.

Taxation Ruling TR 98/9 discusses the deductibility of self-education expenses incurred by an employee or a person in business.

Ordinarily, expenditure on accommodation and meals has the character of a private or domestic expense. However, where the expenditure is incurred when a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meal expenses are deductible under section 8-1 of the ITAA 1997 as they are part of the necessary cost of attending the educational institution. However, where a taxpayer who has travelled to another location for self-education purposes has established a new home, expenditure on accommodation and meals is considered private in nature and not allowable under section 8-1 of the ITAA 1997.

Paragraph 93 of TR 98/9 provides factors taken into account in determining if a new home has been established when a taxpayer is away from home for an extended period.

Paragraphs 97 to 109 of TR 98/9 provides examples of situations where a taxpayer has established a new home and where others are travelling away from their home for self-education purposes. Paragraph 97 provides the following example:

Example 2: John, who is single, decides to undertake a 2-year course of study at a university in a city 250 kilometres from the town where he lives with his parents. He shares a rented house with some other students during this period and takes a casual job. He occasionally returns to the parent home on weekends.

Paragraph 98 of TR 98/9 concludes that John has established a new home and as stated in paragraph 91, when a taxpayer establishes a new home, expenditure on meals and accommodation is private in nature and therefore, not allowable under section 8-1 of the ITAA 1997.

When applying the factors listed in paragraph 93 to your circumstances, it is considered that your circumstances are similar to those given in Example 2 at paragraph 97 of TR 98/9 in that for the duration of your stay in Country A, you established a new home. As such, your rent expenses are not deductible under section 8-1 of the ITAA 1997 as they are private in nature.

Further, in order to receive the government education assistance payments, you had to qualify by being enrolled in a course of education at an educational institution, undertaking at least three-quarters of the normal amount of full-time study in the course and in the Social Security Secretary's opinion make satisfactory progress towards completing the course.

It was not a condition of receiving the government education assistance that you were required to study at a certain university or institution. It was not a requirement that you travel overseas as part of your studies or a condition in order for you to continue to receive the government education assistance. Where you undertook your studies was a choice made by you. The cost for your airfares to Country a and return were costs you incurred in locating yourself to attend the overseas educational institution and not a cost which was incurred in gaining or producing the government education assistance income. Further the rent costs paid by you were an expense you incurred in choosing to live in that particular location and not an expense incurred in deriving your government education assistance income.

In deriving the government education assistance income you were required to pass the income test, be enrolled in a qualifying course and satisfactorily progress to finishing the education. In doing this, you enrolled at the Australian university to undertake your course and received the government education assistance payments. There was no requirement that you go over and beyond the requirements to qualify for government education assistance as there was no difference to the government education assistance as to the amount you would receive as in the case of an employee who goes further to try and get a better reward/higher income. Your choice to undertake your study overseas was not an expense incurred for the purpose of meeting the tests to qualify for the government education assistance. You undertook the exchange to expand your experiences and increase your employability. It was a personal choice by you to re-locate to Country A to do your studies. The expenses incurred, (rent and airfares) are personal expenses and not expenses directly related to your study.

Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the airfares or rent costs in attending the overseas university.