Edited version of your private ruling

Authorisation Number: 1012448043225

Ruling

Subject: Self education expenses

Question 1

Are you entitled to a deduction for the costs of your course fees and materials incurred for your course?

Answer

Yes.

Question 2

Are you entitled to a deduction for one return airfare incurred to attend the course?

Answer

Yes.

Question 3

Are you entitled to a deduction for additional airfares incurred?

Answer

No.

Question 4

Are you entitled to a deduction for your accommodation and meal expenses incurred while studying?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts

You are a professional.

You are presently employed. Your contract is expected to be renewed for a further period of years.

You wish to undertake a course overseas. The course duration is more than 10 months.

The course is related to your day to day employment duties and will improve your skills.

You have previously attended some courses on a similar subject matter.

You will be on unpaid leave during the course and return to your position after the course.

While overseas you will be doing some work and also expect to return to Australia as often as possible to work here.

You will also incur costs for course fees, materials, airfares, accommodation and meals.

You will travel alone and probably live in rented accommodation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Allowable deductions

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.

A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997:

§ it must have the essential character of an outgoing incurred in gaining assessable income or, in other words of an income-producing expense (Lunney v FC of T (1958) 100 CLR 478);

§ there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v FC of T (1949) 78 CLR 47)

§ it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 95 CLR 344; FC of T v Hatchett 71 ATC 4184.

Self education expenses

Self education expenses are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities.

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

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 the taxpayer to get employment, to obtain new employment or to open up a new income earning activity, whether in business or in the taxpayer's current employment. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

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. Consequently the expenses incurred for your course fees and materials have the necessary and relevant connection with the earning of your assessable income and are therefore deductible under section 8-1 of the ITAA 1997.

Airfares

TR 98/9 states that airfares incurred on overseas study tours or sabbatical are an allowable deduction under section 8-1 of the ITAA 1997. Therefore you are entitled to a deduction for the cost of one return airfare.

However, should you choose to return to Australia during your studies, such additional travel is not sufficiently connected to your income earning activities. This travel is as a result of a personal choice and is private in nature. The travel is also a prerequisite to any work that may be done in Australia. Therefore the cost of any additional airfares during your course is not an allowable deduction.

Accommodation and meal expenses

TR 98/9 considers occasions where accommodation expenses and other travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity or away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997.

However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation and meals remain private in nature and are not deductible under section 8-1 of the ITAA 1997.

TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. They 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 (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.

TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. 

Example 3: Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

In your case, you currently work and live in Australia. You are travelling overseas to study for several months. You will be staying in accommodation in the one city for this period.

As this city will be your place of residence for the duration of the course, it is considered that you will establish a new home there. Therefore, you are not entitled to a deduction for your accommodation or meal expenses, as the expenses are not incurred in gaining or producing assessable income. The expenditure is inherently of a private or domestic nature and is not allowable under section 8-1 of the ITAA 1997.