Edited version of your written advice

Authorisation Number: 1051288033159

Date of advice: 10 October 2017

Ruling

Subject: Deductable amounts and study

Question 1

Is a deduction allowable for compulsory student fees levied by the university, textbooks and project expenses?

Answer

Yes.

Question 2

Is a deduction allowable for ‘Higher Education Contribution Scheme’ (HECS) contributions to an undergraduate degree?

Answer

No

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are required to do an undergraduate degree majoring in one of the subjects relevant to a rotation undertaken during the employment period.

An education allowance is paid as part of your assessable income for the following expenses:

● HECS contributions associated with the undergraduate degree

● compulsory student fees levied by the University

● textbooks

● project expenses

Relevant legislative provisions

Higher Education Support Act 2003

Section 8-1 of the Income Tax Assessment Act 1997

Section 82A of the Income Tax Assessment Act 1936

Reasons for Decision

These reasons for decision accompany the notice of this private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

Deductions for compulsory university student fees, textbooks and project expenses are allowable under Section 8-1 of the Income Tax Assessment Act 1997, (ITAA 1997). Notwithstanding they are subject to the limitations set out in subsection 82A(2) of the Income Tax Assessment Act 1936 (ITAA 1936). Deductions of course contributions for courses financed under HECS are disallowed under paragraph 26-20(1)(ca) of the ITAA 1997.

Deduction of compulsory university student fees, textbooks and project expenses:

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent that 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 Income tax: deductable self-education expenses incurred by an employee or a person in business (TR 98/9), identifies the circumstances that make self-education expenses an allowable deduction. A deduction is allowable 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).

Subsection 82A(2) of the ITAA 1936 operates to limit the amount of expenses otherwise allowable under section 8-1 of the ITAA 1997. The limit will be the net aggregate of the deductions allowable in any income year that exceeds $250.

This means self-education expenses that are allowed under section 8-1 of the ITAA 1997 may also be defined as ‘expenses of self-education’ under subsection 82A(2) of the ITAA 1936.

‘Expenses of self-education’ means expenses necessarily incurred by the tax payer for or in connection with a prescribed course of education.

‘Prescribed course of education’ means a course of education provided by a school, college, university or other place of education and undertaken for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade or in the course of any employment.

Paragraph 26 of TR 98/9 says expenses relating to self-education that are compulsory and unavoidable, as well as those for which a need can be shown in terms of fulfilling the requirements of the course, are regarded as being ‘necessarily incurred’ and are ‘expenses of self-education’.

As part of the contract for employment there are expenses incurred, associated with projects, textbooks and payment of compulsory student fees levied by the University.

These expenses are described as ‘expenses of self-education’ in subsection 82A(2) of the ITAA 1936. Although they are deductable under section 8-1 of the ITAA 1997, subsection 82A(2) of the ITAA 1936 operates to reduce the amount of the aggregate deduction in any income year by the first $250.

Claim for a deduction of HECS contributions associated with an undergraduate degree:

Undergraduate contributions are classified as ‘student contribution amounts’ within the meaning of the Higher Education Support Act 2003 (HESA 2003).

Paragraph 26-20(1)(ca) of the ITAA 1997 provides ‘student contribution amounts’ within the meaning of the HESA 2003 cannot be deducted under the ITAA 1997 and therefore operates to specifically exclude deductions for contributions to courses that the Commonwealth Government provides subsidies for under HECS. The course undertaken is one of these courses. For this reason no deduction is allowable under section 8-1 of the ITAA for these ‘student contribution amounts’.