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Ruling

Subject: Deduction-self-education expenses

Question 1

Are you entitled to a deduction for self-education expenses?

Answer: Yes

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

You received a disability support pension.

You also received a payment from Centrelink to assist with your studies.

You are studying for a number of courses at an education facility.

You studied part-time.

The education facility is a registered training organisation.

You are seeking to claim a number of expenses in relation to your studies.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer shall include the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the taxation year.

The payment you receive to assist with your studies is included in your assessable income under section 6-5 on the ITAA 1997.

Self education 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, private or domestic nature, relate to the earning of exempt income or are excluded by another provision of the taxation legislation.

To be an allowable deduction under this section an expense must be incidental and relevant to the gaining or producing of assessable income (Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431).

A recent High Court decision, Commissioner of Taxation v.Anstis (2010) CLR 443; (2010) 76 ATR 735; ATC 20-221 (Anstis' case) confirmed that the expenditure satisfied section 8-1 of the ITAA 1997. The High Court provided the following in their reasoning (at paragraph 29) for treating the study expenses as deductible:

It may be said that the income was assessable not by reason of any personal exertion or exploitation of property on the part of the respondent. However, contrary to the submission by the Commissioner, that does not inexorably lead to a conclusion that there may be no deductions of any kind allowed under s 8-1 of the 1997 Act. The notion of "gaining or producing" income within the meaning of s 8-1(1)(a) is wider than those activities which may be said to earn income. According to its ordinary meaning, to "gain" means not only to "earn or obtain (a living)" but to "obtain, secure or acquire" or to "receive". Similarly, the ordinary meaning of the verb "produce" is to "bring (a thing) into existence" and is not limited to bringing something into existence by mental or physical labour.

And further at paragraph 30,

Rather, as Ryan J said, the assessable youth allowance income received by the respondent was gained or produced by her entitlement to that payment consequent on the determination by the Secretary that she qualified for the payment. That statutory right to payment would be retained by her, without reduction, non-payment, suspension or cancellation, so long as she maintained her qualification for the payment by satisfying the activity test by undertaking full-time study so defined.

Also at paragraph 34,

Those outgoings were deductible by reason of their being incurred in the course of her retention of a statutory right to payment.

Your case can be likened to Anstis' case in that you had undertaken part-time study at registration training organisation in order to receive a government payment to undertake your studies. Given the High Courts decision in Anstis' case you are entitled to a deduction under section 8-1 of the ITAA 1997 for the study expenses incurred to retain your entitlement to the study payment.