Edited version of your written advice

Authorisation Number: 1012879808181

Date of advice: 23 September 2015

Ruling

Subject: Self-Education Expense

Question 1

Are you entitled to a deduction for the course fee less the contribution from your employer?

Answer

Yes.

Question 2

Are you entitled to a deduction for the amount you repaid your employer?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You wanted to increase your knowledge and skills in a particular area of your work.

You applied for assistance from your employer to study a course to build your skills in that area.

Your employer granted your application for study assistance and paid you an amount as a contribution to go towards the cost of the course and allowed you study leave.

After completing the course you resigned from your employment as you realised that you wanted to work exclusively in the particular area that you had just studied.

You were then asked to pay back the amount previously given to you.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1936 Section 51AH.

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.

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

Where an expense is incurred in order to obtain new employment that expense, is incurred at a point too soon to be considered to be incurred in the course of gaining assessable income from that future employment and therefore is not deductible.

Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement explains that an allowance is a payment to cover an estimated expense, and will be paid regardless of whether the recipient incurs the expected expense.

In contrast, a reimbursement is compensation, either wholly or partly, for an actual expense. Requirements that the recipient vouch for the expense and/or refund unexpended amounts indicate that the payment is a reimbursement. Payments with these characteristics but which are made in advance of expenditure are also considered to be reimbursements.

Under section 51AH of the Income Tax Assessment Act 1936 a deduction an employee can claim must be reduced by any amount reimbursed by their employer.

Your circumstances

You undertook a course in order to improve your skills in a particular area of your work. Although you later resigned from that employment after the course was completed, it is accepted that when you incurred the self-education expenses, it was to maintain or enhance the skills that were required in the performance of your duties in your then current employment and therefore were incurred in gaining or producing your assessable income.

Your employer contributed an amount that was to go towards the cost of the course. It is considered that this contribution was a reimbursement of part of the course fee. Therefore, you are only entitled to a deduction for self-education expenses of the course fee less your employer's contribution.

Although you later repaid your former employer the amount they contributed towards the course fee, this amount no longer has the character of a self-education expense. When you paid this amount to your former employer, it was not in order to undertake a course to help you do your job better; you had already done the course and had resigned from that employment. Rather you paid the amount because of your resignation. The amount was incurred by you after your income earning activities with your former employer had ceased and at a point too soon in relation to any future employment. Therefore you are not entitled to a deduction for the amount you repaid.

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.