Edited version of private advice

Authorisation Number: 7910150733825

Date of advice: 21 June 2022

Ruling

Subject: Self-education expenses

Question 1

Are you entitled to a deduction for self-education expenses incurred in association with completing a Master of Business Administration (MBA) under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Are the deposit costs of the MBA course deductible in the year in which they are incurred, to the extent that the university requires them to be paid by that date?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30/06/20XX

Year ending 30/06/20XX

Year ending 30/06/20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your current employment

You are currently employed by a business consulting firm as an analyst on a full-time basis.

You commenced your employment in 20XX.

Your current qualifications include a Bachelor of Science and a Masters of Public Health.

The proposed study

You will be undertaking an intensive Master of Business Administration (MBA) course at University overseas.

The MBA is a 12-month intensive MBA comprising of three semesters commencing in the 20XX-XX income year and finishing in the 20XX-XX income year.

The University is strongly recommended by your employer.

The costs incurred include the University tuition fees, travel costs to the university, on-campus and study ancillary costs.

The core subjects of the MBA cover topics including:

•         accounting

•         analytics

•         business finance

•         economic markets

•         organisational behaviour

•         marketing Strategy

•         technology and operations management.

You will not be receiving any Austudy, Abstudy or an allowance in support of doing your course. You will incur the full expense of the MBA.

You will not be receiving a scholarship/bursary in relation to your study overseas.

The MBA will also provide supplementary core knowledge to a high order in disciplines to which you have only had a limited exposure.

Support from your employer

Your employer supports your study and will recognise your employment during your study period.

Your employer will provide you with a 'leave of absence' during this period and will guarantee your existing position upon your return to Australia post MBA.

Your employer has also encouraged you to undertake the course by:

•         providing references to support your application to the university.

•         allowing you to restructure your role during your overseas study.

•         allowing you to take study leave to undertake the course and a guaranteed return to at least your current position upon return to Australia.

•         assuring you of consideration for a higher position (with a higher salary) within the firm at the successful conclusion of your course and return to Australia.

Connection to your current and future employment

The MBA will provide support for you to undertake projects in other sectors on your return to Australia.

The MBA will also provide supplementary core knowledge to a high order in disciplines to which you have a limited exposure.

The firm has also indicated that upon completion of the MBA, you will be positioned, for promotion within the organisation, with substantial increase in role responsibilities and taxable income anticipated.

You will attend relevant conferences recruiting and business events in promoting the firm.

Your current position as analyst within the firm's city office. Your position is centred around the health and ancillary sectors of the economy. The position requires in depth knowledge of various sectors in the economy and society both domestically and internationally.

The study has relevance to the duties of your current role.

Expenses

The university required a deposit payment towards tuition be paid earlier in the 20XX income year, and this has been paid. The balance of the tuition fees are due later in 20XX, in the 20XX-XX income year.

Accommodation while overseas.

Cost of attending events during your study.

Associated study costs.

Costs of flights to and from overseas.

Cost of a computer used for study.

You will claim costs as incurred and paid

Living arrangements

You own a principal place of residence in Australia.

You will retain this property while you are studying overseas.

The property will be occupied by a friend in your absence overseas and will not be rented out.

It is your intention to not holiday before or after your studies and to return to Australia immediately on completion of your course.

You will be living on-campus during your study.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 900-115

Income Tax Assessment Act 1997 section 900-120

Income Tax Assessment Act 1936 section 82KZM

Income Tax Assessment Act 1936 subsection 82KZL(1)

Income Tax Assessment Act 1936 subsection 82KZM(1)

Reasons for decision

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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, discusses circumstances in which self-education expenses are allowable. 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.

When considering items that would be allowable as a self-education deduction consideration to the item being compulsory and unavoidable expenses, as well as those for which a need can be shown, are regarded as 'necessarily incurred'. This includes expenditure on fares, travel and accommodation, as well as fees, books and equipment to the extent they are incurred in pursuing a prescribed course of education. The balance is between expenses needed to fulfil the requirements of the course and those related to the provision of items, etc., which may merely serve a useful purpose.

In your case, it is accepted that the course will maintain or enhance the skills that you require to perform your duties as a lead knowledge analyst. Consequently, the self-education expenses you incurred while you are employed by your current employer have the necessary and relevant connection with the earning of your assessable income and are allowable deductions under section 8-1 of the ITAA 1997.

Course Fees, Textbooks, Stationery

TR 98/9 provides that course fees, textbooks, stationery costs incurred in attending an educational institution where there is a necessary and relevant connection with the earning of assessable income is an allowable deduction under section 8-1 of the ITAA 1997. Therefore, the expenses you incurred for course fees, textbooks, and stationery costs relating to the study you undertook overseas are deductible self-education expenses.

Accommodation

Paragraph 24 of TR 98/9 provides that accommodation expenses would not be deductible under section 8-1 of the ITAA 1997, where the accommodation constitutes the establishment of a new home. You have maintained a residence in Australia with most of your belongings. You also intend to return to Australia. The purpose of the accommodation is to attend the university and was only maintained during your study overseas. Therefore, expenditure on accommodation is an allowable deduction under section 8-1 of the ITAA 1997 as you have not established a new home overseas.

Airfares

Paragraph 111 of TR 98/9 further provides that airfares incurred on overseas study tours or sabbatical, on work related conferences or seminars or attending an educational institution are deductible under section 8-1 of the ITAA 1997. They are considered part of the necessary costs of participating in the tour or attending the conference or seminar or the educational institution.

Visa

The purpose of obtaining a visa is to allow you to enter and stay in another country. The expense is not considered to be incurred in the course of gaining or producing your assessable income. Therefore, the expense is private in nature and is not an allowable deduction under section 8-1 of the ITAA 1997.

Decline in Value - Computer

Paragraph 79 of TR 98/9 states you can deduct an amount for the decline in value of assets such as technical instruments and equipment, computers, calculators, professional libraries, filing cabinets and desks if the self-education satisfies the principles outlined in paragraph 13 and 14. You can claim assets that cost more than $300 over the life of the asset (decline in value). However, if the asset that cost $300 or less you can claim an immediate deduction for the full cost of the asset to the extent that you used it for study in the income year you bought it. You must also reduce your deduction by the extent to which you use the asset for other than a taxable purpose.

Question 2

Are the deposit costs of the one year MBA course deductible in the year in which they are incurred, to the extent that the university requires them to be paid by that date?

Detailed reasoning

Prepaid expenses

Tuition payment

Section 82KZM of the Income Tax Assessment Act 1936 (ITAA 1936) contains the rules which affect the timing of deductions for certain prepaid expenses. The effect of section 82KZM of the ITAA 1936 is to evenly spread the deduction for prepaid expenses over the years comprising the eligible service period.

If an individual incurs expenditure deductible under section 8-1 of the ITAA 1997 not in carrying on a business and the eligible service period is:

•         Longer than 12 months; or

•         Is shorter than 12 months but ends after the last day of the year of income after the one in which the expenditure was incurred.

Then the deduction can be apportioned over the years of the eligible service period. According to the interpretation of the term "eligible service period" in subsection 82KZL (1) of the ITAA 1936, in your case the eligible service period will begin and end on the first and last days of your MBA course respectively.

You have decided to pay the tuition fees (not including the deposit) during the 20XX financial year. This means the balance payment for tuition is fully deductible in the 20XX year. This is because the payment and the end of the service period is shorter than 12 months and ends before the last day of the year of income after the one in which the expenditure will be incurred.

Deposit

Subsection 82KZM (1)(b) of the ITAA 1936 provides that the section does not apply to excluded expenditure. Subsection 82KZL (1) of the ITAA 1936 defines "excluded expenditure" to include an amount of expenditure under a contract of service.

The deposit payment for the Master of Business Administration (MBA) course is a payment that is required to be paid by XX April 20XX under a contract of service, and therefore is an excluded payment. As such it can be claimed as a deduction in the year in which it is incurred.

Any voluntary payments made in the 20XX income year will not be excluded expenditure and would need to be apportioned according to the formula in subsection 82KZM (1)(c) of the ITAA 1936. As the eligible service period would begin and end on the start and finish dates of the MBA course, this would result in apportionment between the 20XX-XX and 20XX-XX income years based on the number of days of the course which fall in each income year.