Edited version of private advice

Authorisation Number: 1052093123496

Date of advice: 1 March 2023

Ruling

Subject: Assessable income and deductions

Issue 1

Assessable income

Question 1

Is the $XXXX AUD that you received in June 20XX assessable income?

Answer

Yes.

Question 2

If you receive future payments, will they be considered assessable income?

Answer

Yes.

Question 3

Is the amount of $XXXX AUD you obtained and spent on study related expenses included in your assessable income?

Answer

Yes.

Issue 2

Deductions

Question 4

Is the $XXXXX AUD that you have spent on your study-related expenses tax deductible?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You applied to Organisation One for a grant.

Organisation One is part of Organisation Two which is a project of Organisation Three.

You applied for a grant for a X month salary (for living expenses) and course fees to upskill and change your career.

In your application, you asked for $XXXX for X months' salary and $XXXX for living expenses.

Organisation One approved your application of $XXXX.

Organisation One then informed you that you that they would need to determine whether they could proceed with making the grant via Organisation Three or whether they would need to request a private funder to pay it as the grant may not meet Organisation Three's charitable objectives of having a direct public benefit.

As the grant did not meet Organisation Three's charitable objectives of having a direct public benefit, Organisation One contacted Organisation Four to see if they would pay it.

Organisation Four arranged for Organisation Five to provide the money.

Organisation Four informed you that they send grant and gift payments from multiple accounts and Organisation Five is an entity that they use to pay their grants and gifts.

You asked Organisation Four to send the money to Organisation Six which is a registered charity in Australia, instead of sending the money directly to you.

You initially wanted Organisation Six to employ you using the $XXXX you were to receive so that the money could be spread out over a longer period instead of being paid as a lump sum.

You also wanted Organisation Six to provide you with access to the $XXXX to use for expenses.

You later decided to change that arrangement and Organisation Six did not employ you.

Organisation Six received the $XXXX from Organisation Five in April 20XX.

Organisation Six transferred $XXXX to you in June 20XX which was half of the salary portion.

Organisation Six held half of the remaining salary amount on your behalf with the intention of transferring it to you after X months of the initial transfer.

This payment was originally estimated to be made in December 20XX.

Organisation Six is also holding $XXXX which is the expenses portion of the grant and have provided you with access to their expenses management system so that you can use this money to pay for study expenses.

You believe that Organisation Four and Organisation Five chose to fund you to support more people to enter careers in the field you are studying.

You do not work for either the Organisation Four or Organisation Five and have no intention of working for either company.

You have not signed any contracts with Organisation Four or Organisation Five.

You have not signed any contracts with Organisation Six regarding the money.

You collaborate with Organisation Six on unrelated projects and have signed contracts with them for those projects.

You do not have any reporting requirements to Organisation One, Organisation Five or Organisation Six.

You remain unsure if you have any reporting requirements to Organisation Four.

The study you are completing consists of a mixture of self-paced study and online courses.

Organisation Four collapsed and following this, Organisation Five filed for bankruptcy in November 20XX due to its association with the company.

There is a possibility that those who were provided money by Organisation Five will need to return the money.

You are uncertain who exactly will be affected by this and believe that it may take several years for legal processes to determine who this will apply to.

Due to uncertainty, Organisation Six decided not to transfer the $XXXX that was scheduled to be transferred to you in December 20XX.

You were also prevented from accessing the remainder of the $XXXX that was specified for study-related expenses.

You had spent $XXXX of this amount.

Organisation Six are intending to keep the money in their bank account.

Legal processes will determine whether the money needs to be returned.

If the money does not need to be returned, then Organisation Six may transfer the remaining money to you.

You are uncertain if you will be studying once the legal processes have been resolved.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Detailed reasoning

Issue 1

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

An entity derives an amount of ordinary income as soon as it is applied or dealt with in any way on the entity's behalf or as directed by it (subsection 6-5(4) of the ITAA 1997).

Ordinary income is income according to ordinary concepts. Generally, this is amounts that everyone would consider to be income. It includes (but is not limited to): earnings, salary, wages, commissions, fees, bonuses, pensions, allowances, and gratuities received in the capacity of employee, the proceeds of a business and money earned from investments.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Based on case law, it can be said that ordinary income generally includes receipts that are earned, expected, relied upon, and have an element of periodicity, recurrence, or regularity.

Payments received in the form of a study allowance are considered to be ordinary income and are therefore assessable under subsection 6-5(2) of the ITAA 1997.

In your case, you received an allowance for your studies and this allowance will need to be included as part of your assessable income for the 20XX-XX income year.

Any future payments you receive will continue to be assessable income.

In your case, you received an allowance for your studies. This allowance will need to be included as part of your assessable income for the 20XX-XX income year, which is the income year that the payment was received in.

Any future payments you receive will continue to be assessable income. These payments will also need to be included in the income year that they are received in and include the source that they are received from.

Issue 2

Deductions

Section 8-1 of the 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 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.

However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (see Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, & 48 62 of TR 98/9).

Studies undertaken in order to obtain employment in a new field are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and such expenses are not deductible.

In your case, although the amount granted to you was to assist with your study expenses, you were not yet employed in your desired profession. You are therefore not entitled to claim a deduction for self-education expenses in respect of your study.