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Authorisation Number: 1012105463721

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Ruling

Subject: overseas self education expenses

Questions

Are you entitled to a deduction for foreign tax paid?

Answer: No

Are you entitled to a deduction for health insurance?

Answer: No

Are you entitled to a deduction for unemployment insurance?

Answer: Yes

Are you entitled to a deduction for pension contributions?

Answer: No

Are you entitled to a deduction for the cost of airfares between Australia and the other country?

Answer: Yes

Are you entitled to a deduction for rent?

Answer: Yes

Are you entitled to a deduction for travel expenses whilst undertaking research in the other country?

Answer: Yes

Are you entitled to a deduction for travel expenses for conference and seminar presentations?

Answer: Yes

Are you entitled to a deduction for the cost of your membership card?

Answer: No

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are an academic.

You travelled overseas to another country during a sabbatical.

You lectured and performed research related to your academic employment in Australia.

You incurred a variety of expenses.

Tax has been deducted from your income by the other country.

Relevant legislative provisions

Income Tax Assessment Act ITAA 1997 Section 8-1

Income Tax Assessment Act ITAA 1997 Section 290-150

Superannuation Industry (Supervision) Act 1993 Section 45

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

 In determining the liability of an Australian resident to Australian tax on foreign sourced income, it is necessary to consider not only the Australian tax laws but also any applicable tax treaty.

 Tax treaties are given the force of law domestically by the International Tax Agreements Act 1953 (the Agreements Act).

 The Agreements Act states that where there are inconsistencies with an Act imposing Australian tax, the Agreements Act will prevail (except in relation to tax avoidance schemes).

 Australia has signed a tax treaty with the other country.

The tax treaty between Australia and the other country grants Australia the taxing right for this income that you derived in the other country.

Deduction for foreign tax paid

Section 8-1 of the 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 nature, private or domestic nature or relate to the earning of exempt income.

The payment of an income tax liability is not an expense incurred in earning your assessable income - salary or wages. It is a payment out of income after it has been earned. Accordingly you are not entitled to a deduction for any foreign tax payable.

Health insurance 

In Case T78 86 ATC 1094 the Administrative Appeals Tribunal allowed a deduction to a barrister for airfares to attend a work-related course. However, the Tribunal held that his claim for travel insurance was expenditure of a private and domestic nature. Expenses such as travel or health insurance policies invariably cover items that are private in nature. You are therefore not entitled to a deduction for your health insurance.

Unemployment insurance

An amount paid to compensate for loss generally acquires the character of that for which it is substituted (FC of T v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts ( FC of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142; Tinkler v. FC of T (1979) 10 ATR 411; 79 ATC 4641; Case Y47 (1991) 22 ATR 3422; 91 ATC 433).

The monthly payments that may be received under the unemployment insurance policy by you would be taxable in Australia. Accordingly, the payments that may be received by you are ordinary income and are therefore assessable under section 6-5 of the ITAA 1997.

You are therefore entitled to a deduction under section 8-1 of the ITAA 1997 for premiums paid under an unemployment insurance policy that provides for an indemnity against loss arising from an inability to earn income.

Superannuation/Pension contributions to an overseas fund

Under section 290-150 of the ITAA 1997 you are entitled to claim an income tax deduction for superannuation contributions made after 1 July 2007.

One of the conditions of claiming is that the contribution must be made to a complying superannuation fund. A complying superannuation fund has the meaning given by section 45 of the Superannuation Industry (Supervision) Act 1993.

A complying superannuation fund is one which the regulator (either the Commissioner of Taxation or the Australian Prudential Regulation Authority) has given notice to the trustee of the fund that they are a complying superannuation fund for a financial year.

As neither the Commissioner nor the Australian Prudential Regulation Authority are regulators for superannuation funds outside of Australia, the fund into which your overseas pension is deposited into cannot be a complying superannuation fund. Therefore you are not able to claim an income tax deduction for your pension contributions.

Travel and accommodation expenses

Section 8-1 of the 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 nature, private or domestic nature or relate to the earning of exempt income.

Taxation Ruling TR 98/9 sets out the Commissioner's policy on self education expenses including expenses incurred in relation to overseas travel. It specifically states that the expenses associated with a sabbatical are to be treated as self-education expenses when considering the deductibility of these expenses.

Self education expenses incurred by a taxpayer while on sabbatical leave will qualify for a deduction under section 8-1 of the ITAA 1997 provided there is a sufficient nexus to the production of assessable income.

Your travel was undertaken for professional development and to further your career. The expenditure you incurred for your overseas travel is relevant and associated with your income earning activity in Australia.

TR 98/9 provides that expenditure on accommodation for overseas study and work related travel is allowable except where a taxpayer has established a new home for the duration of his/her overseas stay. When a taxpayer has established a new home, expenditure on meals and accommodation is private or domestic in nature and therefore not allowable under section 8-1 of the ITAA 1997.

The factors to be considered to determine whether a new home has been established 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, for example, 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.

Applying the above to your circumstances, we considered that you would not have established a new home whilst overseas as the total duration of your overseas trip is relatively short. You were in the other country for a short period and whilst overseas frequently travelled to other regional countries to attend seminars and conferences. You stayed in short term rental accommodation at the University. Although family members stayed with you for a portion of the trip you continued to maintain your home in Australia while you were away.

As your overseas trip is considered to have a direct connection with your Australian employment and a new home was not considered to have been established overseas, the expenses you incurred on accommodation whilst you are attending work related activities in the other country are considered allowable deductions.