Edited version of your written advice

Authorisation Number: 1051332816648

Date of advice: 5 February 2018

Ruling

Subject: Self-education expenses

Question 1

Are you entitled to a deduction for self-education expenses you incurred for tuition fees for a Master of Business Administration (MBA) at overseas university?

Answer

Yes

Question 2

Are entitled to a deduction for self-education expenses for airfares at beginning of course and return airfare at completion of course?

Answer

Yes

Question 3

Are entitled to a deduction for self-education expenses you incurred for Stationery, textbooks and course materials, depreciation on laptop, computer consumables?

Answer

Yes

Question 4

Are you entitled to a deduction for self-education expenses you incurred for interest on borrowed money used to pay for the above expenses?

Answer

Yes

This ruling applies for the following period(s)

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on

1 May 20XX

Relevant facts and circumstances

You commenced full time employment at xxxxxx as a xxxxxx, on xxxxx. Your day to day duties include:

● Management of major projects within the business;

● Provision of commercial and general business support executive team;

● Leading and assisting in the development and review of the Strategic Plan;

● Developing strategic insights executive team;

● Identifying and implementing new growth opportunities; and

● Managing one direct report and other members of cross-functional project teams

You applied to xxxxx for Master of Business Administration (MBA).

You commenced the MBA xxxxxx.

The MBA is a full time two year management program that you expect to complete in xxxxx.

There are three breaks;

Your first year compulsory subjects are:

Your 2^nd year elective topics are not available to be selected until xxxxx, but you are looking to undertake electives related to strategy, leadership and general management.

You are on unpaid leave from your employer.

You will return to your full time job with your employer on completion of your MBA.

Your employer provided a letter stating they encouraged you to undertake your MBA and they are not contributing to your financial costs for your MBA but you will remain employed by them on unpaid leave.

You intend to return to Australia from during University break. You will be visiting your employer during these visits.

You believe by undertaking the MBA you will continue to improve your skills in strategy, leadership and management and to obtain international experience and knowledge, which will assist in identifying new international growth opportunities for your employer.

You received a salary and wages bonus from your employer prior to commencing the MBA used to contribute towards tuition expenses.

You have earned an income from your employer in the following financial xxxx years:

You have provided the following details in relation to your self-education expenses for your MBA:

● tuition fees

● flight costs

● compulsory course materials costs

● laptop and Microsoft Office software

● stationery costs

● Interest on money borrowed to pay for self-education expenses

Relevant legal provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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 where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Taxation Ruling TR 98/9 discusses the circumstances in which self-education expenses are allowable as a deduction including where a taxpayer's current 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.

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.

Paragraph 23 of TR 98/9 states that subject to the general tests under section 8-1 of the ITAA 1997 being met, the following types of expenses relating to approved self-education are allowable deductions;

● course or tuition fees of attending educational institutions, conferences or seminars

● the cost of professional and trade journals, text books and stationery

● airfares incurred on overseas study tours, on work-related conferences or seminars, or attending educational institutions

● interest incurred on borrowed monies where the funds are used to pay for self-education expenses associated with a course of education, that enable a taxpayer to maintain or improve his or her skill or knowledge or is likely to lead to an increase in income from the taxpayer’s current income earning activities.

In your case, you were on unpaid leave from your employment while undertaking the MBA. The fact that a person is on unpaid leave from their employment does not sever the connection with their employment as they are still employed during that time. In Sykes v. Cleary (No.2) 1992 176 CLR 77 it was decided that an employee taxpayer on leave without pay continues to be an employee. There has been no break in employment due to you being on leave.

It is considered that a sufficient connection exists between your studies and your income producing activities with your employer. You undertook the MBA to enhance your existing capabilities, skills and knowledge that are required in the performance of your employment activities with this employer.

Consequently, the self-education expenses incurred in undertaking the MBA have the necessary and relevant connection with the earning of your assessable income. As there is the necessary connection between the course and your current income-earning activities you are entitled to claim a deduction for your tuition fees, airfares, stationery, text books and course material, laptop computer and computer consumables and interest on borrowed money to fund MBA in the financial year in which they are incurred.

The expenses for your accommodation, health insurance, meals, travel and the air fares to return to Australia during study breaks are private in nature and not deductable.

Limit on deductibility Section 82A

The self-education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the ITAA 1936. An explanation on how this provision operates is provided at paragraphs 119 to 155 of TR 98/9, which can be access on our website ato.gov.au.

Timing of deduction

Allowable self-education expenses are deductible in the financial year in which they are incurred. If your total allowable deductions exceed your total assessable income in a financial year, the excess (or loss) can be carried over and offset against assessable income in the following year.

Refer to Paragraph 113 of TR 98/9 Interest expenses, regard must be had to the connection between the interest expense and the income-earning activity in each income year interest is claimed because a change in circumstance, for example, a change of employment, may mean that the necessary connection no long exists.

ATO view documents

Taxation Ruling TR 98/9