Edited version of your private ruling

Authorisation Number: 1012474180551

Ruling

Subject: Work-related self education expenses

Question

Are you entitled to a deduction for the costs incurred for a study tour to Location X during late 2012 as self-education expenses?

Answer

Yes.

Question

Are you entitled to a deduction for the costs incurred in a trip to Location Y immediately prior to your trip to Location X?

Answer

No.

Question

Are you entitled to claim a portion of the airfare expenses representing the study tour portion of your trip to Location X?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The schemed commenced on:

1 July 2011

Relevant facts

You are employed in Australia in a creative field. As part of your employment you are required to run projects and study design trends.

In mid-to-late 2012 you travelled to Location X with your spouse. The purpose of this trip was to participate in a study tour of Location X which is only offered on a by-yearly basis.

This study tour provided you with insights into design creativity in Location X, including visits to publically inaccessible locations, and discussions with local designers in Location X.

During the tour you maintained detailed travel records in the form of a daily travel itinerary, photographic records, and design records. Your travel itinerary identified all of the activities that you were a participant in during your time on the study your, and you have stated that this is an accurate record of your activities during that time.

You were not required to participate in the tour by your employer and were not reimbursed for any expenses by your employer. However, as part of your employment, you are required to maintain your professional development. You believed that, due to the reputation of this study tour, you would continue your development requirements by attending this tour.

The study tour was educational in that it was part of your continued professional development. This study tour has also aided your professional career, in that you have utilised many of the design elements studied whilst on the tour in your current design work.

Immediately prior to attending the study tour, you and your spouse undertook a private trip to Location Y. You have stated that a trip to Location Y was offered as part of the study tour to Location X; however it did not provide you with the elements you wanted to experience. As such, you and your spouse conducted your own trip to Location Y prior to the study tour.

You have provided separated cost details for the study tour to Location X and the private trip to Location Y. This includes apportionment of the airfares to take into account your private trip to Location Y.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 8-1

Income Tax Assessment Act 1997 - Subdivision 900-E

Income Tax Assessment Act 1997 - Subdivision 900-F

Income Tax Assessment Act 1997 - Section 900-85

Income Tax Assessment Act 1997 - Subsection 900-150(1)

ATO View Documents

Taxation Ruling IT 2198 Income tax: allowable deductions: expenditure voluntarily incurred by employee taxpayers

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business

Reasons for decision

Pursuant to subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997):

You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income;

Most work-related travel and self-education expenses are incurred voluntarily. To be allowable as a deduction, their Honours, Latham CJ, Rich, Dixon, McTiernan, and Webb JJ in the case of Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47 noted that work-related expenditure must be relevant and incidental to the gaining or producing of assessable income. This requirement of 'relevant and incidental' indicates a close connection between the expense and the gaining or producing of assessable income, not merely a general or casual connection.

An example of a court decision which has allowed work related expenditure on overseas travel for self-education purposes is presented in the following High Court decision in Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60 (Finn's case).

Finn's case involved a senior government design architect, who went on an overseas tour for the express purpose of studying current trends in architecture with a view to improving his prospects of future promotion and an increase in salary. His employer also requested that he travel to South America and reimbursed him for some of his expenses; while on his trip he kept a written record of what he did and the buildings he studied. He also took numerous photos, sketches, and wrote up reports and records. 

In consideration of the facts in Finn's case, the High Court found that the travel expenses were part and parcel of his employment. That connection was clear because his employer requested that he travel and provided financial assistance. The travel was also likely to lead to promotion, the taxpayer's income-earning activities were based on the exercise of skill and knowledge, and the taxpayer's motive for travel was to increase his salary prospects through the increase of his architectural knowledge and skill.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, considers Finn's case, as well as similar cases, and provides the following principles of deductibility for self-education expenses under section 8-1 of the ITAA 1997.

a) a deduction is allowable for self-education expenses if the 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;

b) a deduction is allowable for self-education expenses if the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer's income from current income-earning activities;

c) expenses related to improving knowledge or skills are not of a capital nature;

d) a deduction is not allowable for self-education expenses if the subject of self-education is designed to get employment, to obtain new employment, or to open up a new income-earning activity;

e) the intention or purpose in incurring the expense may be an element in determining whether the expense is allowable.

Where voluntary expenditure is incurred, that is, without the express requirement of the employer, Taxation Ruling IT 2198 Income tax: allowable deductions: expenditure voluntarily incurred by employee taxpayers, provides the Commissioner's view that deductibility of voluntary expenditure will depend on the particular circumstances of the case.

Application to your circumstances

The expenses you incurred in respect of your study tour to Location X during late 2012 are deductible in full under section 8-1 of the ITAA 1997, as your circumstances are similar to those in Finn's case.

The expenses you incurred are relevant and incidental to your current income producing activities as an urban designer, and the skills and knowledge you gained while of the study tour have been directly applied in your work projects.

The private trip to Location Y immediately prior to the study tour was not incidental to the income producing purpose of the study tour, as you have stated that a trip to Location Y was offered as part of the study tour, but did not offer all the elements you wanted to experience. As such, you and your spouse decided to conduct your own trip to Location Y prior to the study tour. Taking these facts into account, the costs incurred on your trip to Location Y are private in nature, and are not deducible.

Where a trip contains both private and work-related purposes, the expenses incurred can be apportioned accordingly. You have provided documentation wherein you have apportioned the value of your flights to Location X to take into account your private trip to Location Y. The apportioned value of your flights to attend the study tour in Location X is reasonable under section 8-1 of the ITAA 1997.

Further issues for you to consider

The following information is provided as written guidance. A taxpayer who relies on guidance will remain liable for any tax shortfall if the guidance is incorrect or misleading and they make a mistake as a result (unless a time limit imposed by the law precludes the liability). However, they will be protected against the shortfall penalty and interest on the tax shortfall provided they relied on that guidance reasonably and in good faith.

Substantiation

Should you wish to apportion your expenses and claim a deduction for the costs incurred during your attendance on a study tour to Location X, it should be noted that the deductibility of the expenses are also subject to substantiation requirements. To claim a deduction for the expenses, you need to provide written evidence to substantiate the expenses (for example receipts) - Subdivision 900-E of the ITAA 1997.

The document or receipt must set out

· the name or business name of the supplier.

· the amount of the expense, expressed in the currency in which it was incurred.

· the nature of the goods or services.

· the day the expense was incurred.

· the day it was made out.

However, written evidence or receipts do not need to be kept if:

· the Commissioner considers it to be unreasonable for written evidence to be kept or,

· each expense is less than $10; and the total of all expenses is less than $200 for an income year.

In such instances, you can record the expense incurred in a separate document (for example, a diary) and it must set out the same information as the written evidence or receipt.

Section 900-85 of the ITAA 1997 states that you need to keep travel records if your expense is for travel that involves you being away from your ordinary residence for 6 or more nights in a row.

Subdivision 900-F (Travel Records) of the ITAA 1997 provides information on travel records. Under section 900-145 it states that the purpose of a travel record is to show which of your activities were undertaken in the course of producing your assessable income, so that your losses or outgoings, or portions of them, can be attributed to income-producing activities.

Subsection 900-150(1) of the ITAA 1997 provides that an activity must be recorded in a diary or similar document specifying the following:

· The nature of the activity;

· The day and approximate time when it began;

· How long it lasted;

Where you engaged in it.

Taxation Ruling TR 97/24 provides relief from the effects of failing to substantiate claims. Pursuant to paragraph [24] of TR 97/24:

[24] Relief is available where the Commissioner considers it unreasonable to expect a taxpayer to have obtained written evidence of an expense in any other way permitted by Subdivision 900-E of the ITAA 1997. In these circumstances section 900-130 of the ITAA 1997 allows a taxpayer to make a record of the expense. These expenses can be recorded using the method specified in section 900-125 of the ITAA 1997. In such cases the taxpayer is required to make a record of those expenses instead of getting a document from the supplier. For example, a taxpayer can record the details in a diary, or on a travel itinerary.