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Ruling

Subject: Self education expenses

Question 1

Are you entitled to a deduction for the cost of the airfares, tuition, student union fees and text books incurred to undertake your self education?

Answer

Yes.

Question 2

Are you entitled to a deduction for the cost of the insurance, accommodation and living expenses incurred to undertake your self education?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ending 30 June 2013

The scheme commences on:

01 July 2011

Relevant facts and circumstances

You are an employee.

You took a leave of absence from your work to undertake a course.

The educational institution is situated in another city.

The course goes for less than nine months.

Your employer encouraged you to undertake the course.

On completion of the course you intend to return to work with your employer.

You are taking subjects which are specifically related to your current employment activities.

The purpose of undertaking the course is to obtain a higher level of remuneration with your existing employer.

You have incurred the following expenses to undertake the course:

· Text books,

· Tuition & student union fees,

· Airfares,

· Accommodation,

· Living expenses, and

· Insurance.

You have not received an allowance or any form of reimbursement for the expenses incurred to undertake this study.

During the period of study you are not maintaining a residence in the city where you used to live and work.

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.

Text books, tuition and student union fees

Taxation Ruling TR 98/9 states that a deduction is allowable for self education expenses if a taxpayer's income earning activities are based on the exercise of a skill or some specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge.

This ruling also indicates that 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 their current income earning activities in the future, then a deduction is allowable.

In your case, it is accepted that the course will maintain or enhance the skills that are required in the performance of your current employment duties.

Accordingly, as your self education directly relates to your current employment, you are entitled to a deduction for the cost of your text books, tuition and student union fees.

Airfares

The deductibility of airfares is dependant upon the reason the expenses were incurred.

Taxation Ruling 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.

In your case, you incurred airfare expenses to fly to another city to undertake a course. Accordingly, as the course is an eligible self education expense, you are entitled to a deduction for the cost of your airfares.

Accommodation and living expenses

Accommodation and living expenses are usually considered to be private in nature.

TR 98/9 states that where a taxpayer is away from home overnight in connection with a self education activity, accommodation and meal expenses which are incurred are in fact deductible under section 8-1. However if the taxpayer establishes a new home then the accommodation and meals expenses are considered to be private and would not be deductible.

The key factors in determining whether a new home has been established are:

· The total duration of the travel;

· Whether the taxpayer stays in one place or moves frequently;

· Nature of the accommodation (eg hotel, long term accommodation);

· Whether the taxpayer is accompanied by his or her family;

· Whether the taxpayer is maintaining a home at the previous location whilst away;

· Frequency and duration of return trips to the previous location.

In your case you are travelling to another city, for a period of less than nine months, to study. During this period you will be staying in accommodation on campus and you will not be maintaining a home back in the city where you used to live and work.

Based on these facts it is considered that you have established a new home. Accordingly, you are not entitled to a deduction for your accommodation and living expenses as these are considered to be private in nature.

Insurance

Insurance policies invariably cover items that are generally private in nature such as illness, loss of baggage, and theft or damage to belongings.

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.

In your case, you incurred insurance expenses whilst undertaking your self education overseas. Although it is accepted that some of these expenses were paid as a precondition to enable you to attend the course, this does not change the fact that these expenses are private in nature.

Accordingly you are not entitled to a deduction for any of these expenses under section 8-1 of the ITAA 1997.

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.