Edited version of your written advice

Authorisation Number: 1012713168448

Ruling

Subject: Self-education

Question 1

Are you entitled to a deduction for the course fees, text books and return airfares?

Answer

Yes.

Question 2

Are you entitled to a deduction for the cost of accommodation?

Answer

No.

Question 3

Are you entitled to a deduction for interest on a portion of the interest on a loan to fund your study?

Answer

Yes.

Question 4

Are you entitled to a deduction for a portion of the decline in value of a laptop and software?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on

1 July 2013

Relevant facts

You are a full time professional.

You travelled overseas to undertake a degree. The course was for approximately 10 months.

You incurred course fees, accommodation, airfares and textbooks.

You also purchased a laptop computer and software for use in your study.

You borrowed from your parent to pay the costs.

You are paying interest on the loan from 1 July 2014.

Your employer could not grant you a leave of absence because of the firm's policy at the time. However, it was mutually agreed that you would re-commence your employment once your course had finished.

Your employer only engaged temporary contractors during your absence so that you could resume your job once you had completed the course.

After you completed the course, you re-commenced your employment on an increased salary.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 40

Reasons for decision

Detailed reasoning

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

Course fees and text books and airfares

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.

The deductibility of your overseas travel also needs to be considered under general self-education principles outlined in TR 98/9.

In your case it is accepted that the study has sufficient nexus to your income earning activities. Therefore, the expenses incurred for course fees, text books and return travel are an allowable deduction.

Accommodation

Generally, accommodation expenses are private in nature and are not deductible.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, explains that expenditure on accommodation will not be allowable as a self-education deduction where a taxpayer has travelled to another location and has established a new home.  The key factors to be taken into account in determining whether a new home has been established 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, e.g., hotel, motel, or 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.

The question of whether a new home has been established depends on all the facts.  There is no one test to satisfy all the circumstances.

In your case, you stayed in rented accommodation for the whole period of approximately 10 months.

Therefore, while we accept that your overseas trip has the relevant nexus to producing your assessable income, your accommodation is not deductible as it is considered that you have established a new home.

Interest

As it is considered that the degree has a direct nexus to producing your assessable income, interest on the loan to pay that portion of the expenses that are also deductible. That is, interest on the part of the loan that relates to the course fees, airfares, text books and computer is deductible. However, as the accommodation is considered to be a private expense, interest on that part of the loan that relates to the accommodation is not deductible.

Laptop and software

Division 40 of the ITAA 1997 allows a deduction equal to the amount of the decline in value for an income year of a depreciating asset held at any time during the year. This deduction is referred to as a capital allowance deduction, is only available to the extent that the depreciating asset is used for a taxable purpose, and is generally claimed over a number of years, depending on the effective life of the asset. The effective life starts when you begin to use the asset or have it installed ready for use.

Therefore, you are entitled to claim a deduction for the decline in value of the laptop and software to the extent that it is used for income producing purposes.