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Ruling

Subject: Self-education expenses

Question 1

Are you entitled to a deduction for self-education expenses you incurred in purchasing text books, stationery, travel expenses and amenities fees for your course?

Answer

Yes.

Question 2

Are you entitled to a deduction for the decline in value of your computer as a self-education expense?

Answer

Yes.

Question 3

Are you entitled to a deduction for your course fees as a self-education expense?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are employed as a manager.

You are responsible for managing the operations and strategic direction, records management and freedom of information for your office.

You commenced a business university course on a part-time basis.

You undertook the course to improve your managerial understanding and develop your ability to provide a positive impact to the organisation through management focused initiatives, changes and strategic enhancements.

Your course fees are paid through a FEE-HELP loan.

Once you complete the course there is a strong likelihood that it will lead to higher responsibilities and income.

You have incurred the following expenses:

· text books

· laptop

· stationery

· travel

· course fees

· amenities fees

You have been provided paid study leave.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 26-20.

Income Tax Assessment Act 1997 Section 40-25

Reasons for decision

Summary

Your studies are considered to increase your skills and knowledge and are sufficiently connected to your current income earning activities. Expenses such as course fees, text books, stationery, travel and amenities fees are allowable deductions. You are also allowed a deduction for the portion of the decline in value of your computer that relates to its use for your studies.

Detailed reasoning

Question 1

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature.

Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. Self-education expenses are deductible where they have a relevant connection to the taxpayer's current income earning activities.

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; (1961) 8 AITR 406).

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.

However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayer's current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161).

In your case, it is accepted that the business course will enhance the skills and knowledge that are required in the performance of your current employment duties as a manager. There is also a strong likelihood that completion of your course will lead to higher responsibilities and income.

Consequently, the self-education expenses incurred in undertaking this degree have the necessary and relevant connection with the earning of your assessable income.

The cost of the textbooks, stationery, travel expenses and amenities fees are therefore deductible as self-education expenses under section 8-1 of the ITAA 1997.

Note

The necessary substantiation of your expenses needs to be kept in relation to any deduction claimed under section 8-1 of the ITAA 1997.

When you use a car or public transport, you can claim the cost of travelling from your:

· home to your place of education and back, and

· work to your place of education and back.

Only the first leg of the trip is deductible if you went from home to your place of education and then to work, or the other way around.

Question 2

Section 40-25 allows a deduction of an amount equal to the decline in value of a depreciating asset to the extent that it is used to produce your assessable income. A computer is a depreciating asset for tax purposes as it has a limited effective life and can be expected to decline in value over the time it is used.

As your computer is a depreciating asset, and therefore capital in nature, you are not allowed a deduction for the outright cost of the computer in the year it is purchased. However, you may claim a deduction for the decline in value of the computer over the time it is used for your self-education purposes. You will also need to apportion the deduction to exclude any private use of the computer.

Where the computer has been purchased part way through the financial year, you must pro-rata the deduction based on the number of days that you have owned the depreciating asset.

There are two methods available to you to calculate the decline in value of the computer:

· The diminishing value method or

· The prime cost method

The calculating details for each of these methods can be found in the Tax Office publication Guide to depreciating assets 2012, available on our website www.ato.gov.au.

Question 3

FEE-HELP is a loan for eligible students not enrolled in Commonwealth supported places and provides assistance to students to pay tuition fees.

If the student meets the requirements for eligibility for a deduction for self-education expenses the whole course fee is deductible. The student is not prevented from claiming a deduction because assistance to pay all or part of the course fee was received under FEE-HELP. The course fee is tax deductible in the year the expense is incurred, that is, the year in which the study is undertaken. However, you are not allowed a deduction under section 26-20 of the ITAA 1997 for the repayment of FEE-HELP debt.

As the expenses you incurred in undertaking your course are eligible self-education expenses, you are entitled to a deduction under section 8-1 of the ITAA 1997 for the amount of course fees paid under FEE-HELP.

Additional information

Please note that 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 the ATO website at www.ato.gov.au.