Edited version of your private ruling

Authorisation Number: 1012059288736

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Ruling

Subject: self education expenses

Question 1

Are you entitled to a deduction for the self education expenses incurred and not reimbursed such as text books, stationery, photocopying and tuition fees?

Answer

Yes.

Question 2

Are you entitled to a deduction for the portion of your laptop running costs that relate to your studies?

Answer

Yes.

Question 3

Are you entitled to a deduction for the decline in value for your hard drive?

Answer

Yes.

Question 4

Are you entitled to a deduction for the unreimbursed portion of one return airfare?

Answer

Yes.

Question 5

Are you entitled to a deduction for your return airfares on two occasions during the course of study?

Answer

No.

Question 6

Are you entitled to a deduction for accommodation and meals while overseas?

Answer

No.

Question 7

Are you entitled to a deduction for your uniform gowns and mortarboard?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

§ the application for private ruling, and

§ additional information.

You are employed full time as a professional and have been with your current employer for more than two years.

You were encouraged by your employer to undertake studies to further your career within the organisation.

You undertook a Masters program overseas.

The course went for a number of months.

You stayed at graduate accommodation for the full period you were overseas. You travelled alone.

Prior to and after your return to Australia you stayed with relations.

You returned to Australia on two occasions for family reasons.

Your employer gave you extended leave of absence. You also used your accrued annual leave entitlements. You returned to a higher position in July 2011 and received a pay rise. You are now a higher ranking professional.

You undertook the course to be promoted within the organisation and to receive a higher salary.

Your employer contributed money towards your costs.

You purchased a hard drive to back up your completed work whilst overseas.

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 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.

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).

Similarly, if the study of a subject of self education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, a deduction is allowable.

In your case, it is accepted that the studies will maintain or enhance the skills that are required in the performance of your current employment duties. Consequently the self education expenses incurred in undertaking the course have the necessary and relevant connection with the earning of your assessable income and are therefore deductible under section 8-1 of the ITAA 1997.

Expenses incurred for photocopying, stationery, textbooks and tuition fees are considered self-education expenses and are allowable as deductions under section 8-1 of the ITAA 1997 to the extent that they relate to your assessable income and have not been paid for by your employer.

Laptop running expenses

A deduction is allowable under section 8-1 of the ITAA 1997 for the cost of running your laptop used for your studies and in the course of earning your assessable income.

You need to ensure that you only claim the income producing use. That is, where the laptop is used for private purposes, then only the work related use is allowable. You should keep a diary of the laptop use to show your income producing hours.

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.

A back-up hard drive is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes.

When calculating your allowable deduction, 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 hard drive where it cost $300 or less and is 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.

Airfares

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, as the main purpose of your travel is for work related study purposes, you are allowed a deduction for the cost of a return airfare.

However your airfares to and from Australia on the two occasions are regarded as private and not sufficiently connected to your income earning activities. Therefore the costs of these airfares are not deductible.

Accommodation and meals

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.

However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation and meals remain private in nature and are not deductible under section 8-1 of the ITAA 1997.

TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. They include:

§ the total duration of the travel

§ whether the taxpayer stays in one place or moves frequently from place to place

§ the nature of the accommodation (hotel, motel, long term accommodation)

§ whether the taxpayer is accompanied by his or her family

§ whether the taxpayer is maintaining a home at the previous location while away, and

§ the frequency and duration of return trips to the previous location.

TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. 

Example 1:     Elizabeth ordinarily lives with her parents in a country town outside Brisbane. She takes 4 months leave from her job to undertake a course of education at a training college in Brisbane. She shares a rented unit in Brisbane with two other students and returns to her parental home every weekend and during holiday periods.

The relatively short period of her stay in Brisbane and the frequency of her return visits to her parental home indicate that Elizabeth has not established a new home in Brisbane.

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 parental home on weekends. 

The length of time that John resides in the city, the long term nature of his accommodation and the fact that he has employment in the city indicate he has established a new home.

Example 3:     Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

In your case, you currently work and live in Australia. You went overseas to study for a number of months. You stayed in graduate accommodation for the full time while overseas.

These factors lend weight to the conclusion that you established a new home overseas while undertaking the course. Therefore, you are not entitled to a deduction for your accommodation or meal expenses, as the expenses are not incurred in gaining or producing assessable income, but rather the expenses are a prerequisite to your study. The expenditure is inherently of a private or domestic nature and is not allowable under section 8-1 of the ITAA 1997.

Gown and mortarboard

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).

The deductibility of expenses incurred to attend a graduation ceremony was considered in Berrett v. FC of T 99 ATC 2127; (1999) 41 ATR 1262 (Berretts case). In that case the taxpayer was employed by the Australian Taxation Office in Melbourne as an Administrative Services Officer. He was enrolled in a Masters degree by correspondence through a Sydney University. The employer paid all necessary course fees and provided paid study leave. The taxpayer drove from Melbourne to Sydney to attend his graduation ceremony and claimed a deduction for the costs of travel, accommodation and the hire of an academic gown.

The Commissioner issued a private ruling which stated that the expenses were not deductible. The taxpayer unsuccessfully objected to the private ruling and sought a review of that decision by the Administrative Appeals Tribunal (AAT).

The taxpayer claimed that the expenses were deductible on the grounds that they were incurred in the course of gaining the qualification in order to earn increased income. The Commissioner submitted that the expenses lacked the required nexus with gaining or producing assessable income and/or were of a private nature.

In disallowing the taxpayers claims the AAT held that it was the course of study itself and the completion of the course which had the required nexus with the gaining of assessable income. It was a matter of personal choice for the taxpayer to travel to the graduation ceremony as he was entitled to receive the degree in absentia. Whether he attended the ceremony or received his degree in the post had no impact on the taxpayer's knowledge or ability to carry out his employment duties or on his promotion prospects.

Similarly, it is considered that the costs of your uniform gowns and mortarboard were not incurred to increase skills or knowledge used in your current income-earning activities. The expenditure was also not incurred in obtaining the qualification from which the prospects of promotion or increased income may flow. The qualification has been gained through the expenditure during the course. The graduation ceremony is merely an open recognition of the gaining of the qualification.

Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of your gown and mortarboard. The expenditure is considered private in nature and not incurred to gain or produce your assessable income.