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Ruling

Subject: Work related expense - self education

Question 1:

Are you entitled to a deduction for your tuition fees incurred to undertake a work related course?

Answer:

Yes

Question 2:

Are you entitled to a deduction for the cost of your airfares to undertake the work related course in Country X?

Answer:

Yes

Question 3:

Are you entitled to a deduction for the registration fees incurred to undertake the exam?

Answer:

No

Question 4:

Are you entitled to a deduction for the admission fees incurred to enable you to work overseas?

Answer:

No

Question 5:

Are you entitled to a deduction for the cost of your airfares to attend the admission ceremony in Country X?

Answer:

No

Question 6:

Are you entitled to a deduction for your accommodation, food and incidental expenses incurred whilst living in Country X?

Answer:

No

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are an employee in Australia.

You took a leave of absence from your work and travelled to Country X where you commenced a course.

The course did not provide any qualifications; however it prepared you to undertake an exam which provided a qualification of being eligible to work overseas.

The course taught areas of your work, which arise frequently in your current employment in Australia.

The course began approximately two weeks after you arrived in Country X.

The course ran for two months and finished approximately two weeks before you undertook the exams.

Whilst in Country X you rented an apartment and incurred living expenses.

You were not renting a residence in Australia whilst living in Country X. Once you returned to Australia you leased a new apartment.

Your spouse was with you in Country X whilst you were undertaking the course.

You returned to your employment in Australia after completing the course.

You were required to travel to Country X again as there was a condition that you had to attend the necessary interview and admission ceremony in person.

Your qualification was raised by your employer in your yearly performance review.

This qualification has also assisted in your recent promotion.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 82A

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.

Taxation Ruling TR 98/9 discusses the circumstances under which self education expenses are allowable as a deduction. Self education expenses are deductible where:

· the taxpayers income-earning activities are based on the exercise of a skill or specific knowledge and the subject of the self education enables the taxpayer to maintain or improve that skill or knowledge, or

· the study of the subject of self education objectively leads to, or is likely to lead to, an increase in the taxpayers' income from their current income-earning activities in the future.

No deduction is allowable for self education expenses if the study is:

· to enable the taxpayer to get employment

· to obtain new employment, or

· to open up a new income-earning activity (whether in business or in the taxpayers current employment).

Several court cases have established general guidelines in determining the deductibility of self education claims. FCT v. Maddalena (1971) 2 ATR 541; (1971) 45 ALJR 426; 71 ATC 4161, supports our view that no deduction is allowable for self education expenses if the study, viewed objectively, is designed to enable a taxpayer to get employment or to obtain new employment. Such expenses would come at a point too soon to be properly regarded as incurred in gaining assessable income.

Course fees

In your case, you undertook the course primarily to assist with passing the exam and therefore becoming eligible to work overseas.

The course taught areas of your work, which arise frequently in your employment in Australia. Since you returned to Australia the contents of the course have assisted you to carry out your daily duties and you have also been promoted. 

Therefore, as the course has improved and enhanced your existing skills and knowledge, a deduction will be allowable for the self education expenses you have incurred in relation to undertaking the course.

Exam fees

The successful completion of the exam makes you eligible to work overseas. The benefits for you, in your current employment within Australia, came from undertaking the study and not the actual exam.

Although the successful completion of the exam has increased your employability, when viewed objectively, the exam in effect opens up a new area of employment for you that of working overseas.

Expenses associated with opening up a new area of employment are considered to be capital in nature. Therefore the costs associated with undertaking the exam are not deductible.

Admission Ceremony

Paragraph 33 of Taxation Ruling TR 95/9 states that admission fees are not an allowable deduction as these expenses are considered to be capital or of a capital nature.

This view is also highlighted in Case L38 79 ATC 208; 23 CTBR (NS) Case 44. In this case, an officer at a State Treasury Department claimed expenditure on admission fees incurred by him in gaining admission as a barrister and solicitor of a State Supreme Court. His admission as a legal practitioner was an essential qualification for the position of legal officer to which he was subsequently appointed. The claim was disallowed by the tribunal on the grounds that upon admission the applicant had acquired an asset of enduring benefit that answered the description of a capital asset or asset of a capital nature.

Accordingly, you are not entitled to a deduction for costs associated with your admission ceremony as these expenses are considered to be capital or of a capital nature.

Airfares

The deductibility of airfares is dependent upon the reason the expenses were incurred. In your situation, you travelled to Country X on two occasions; once to attend the course and on the second occasion to attended the admission ceremony.

TR 95/9 states that airfare expenses incurred on overseas study tours or sabbatical, on work related conferences or seminars or attending an educational institution are deductible under section 8-1 of the ITAA 1997. They are part of the necessary cost of participating in the tour or attending the conference or seminar or the educational institution.

The first occasion that you travelled to Country X was to attend the course. This course relates to your current employment and is an eligible self education expense. Accordingly you are entitled to a deduction for the airfares when you attended the course

On the second occasion you travelled to Country X for the admission ceremony. As the costs associated with your admission to work overseas are considered to be capital or of a capital nature, you are not entitled to a deduction for your airfares when you attended the admission ceremony.

Living expenses

Expenditure on accommodation and meals ordinarily has the character of a private or domestic expense and is not allowable under section 8-1 of the ITAA 1997. Paragraph 90 of TR 98/9 supports the view that accommodation would be considered private or domestic in nature where an employee had no private home and, did in fact live away. The same principles apply when a taxpayer establishes a new home.

In your case, whilst you were in Country X you rented out an apartment and did not have a residence in Australia. In addition your spouse accompanied you for the duration of your time in Country X.

Therefore it is considered that you have established a new home in Country X for the duration of your time abroad. Accordingly you are not entitled to a deduction for your living expenses as these are considered to be of a private nature.

Limit on deductibility Section 82A

The self education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. An explanation on how this provision operates is provided at paragraphs 119 to 155 of TR 98/9, which can be accessed on our website at www.ato.gov.au.