Private ruling: Self-education expenses
Published: May 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for airfare expenses incurred in travelling to take part in a work exchange? | A1: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: 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 nature, private or domestic nature or relate to the earning of exempt income. In Case V82 88 ATC 577; (1988) 19 ATR 3552 a teacher on an exchange program to Canada, was allowed a proportion of his travel costs. As the taxpayer's exchange service was part of his employment, it was not possible to find that no part of the expenditure claimed was incurred in gaining or producing the income derived directly from that exchange service. But for the fact that the income which the taxpayer derived while in Canada was exempt from Australian tax, the essential character of the whole of the expenditure claimed would be that of expenditure incurred in gaining or producing assessable income. Although, no financial advantage was gained by the taxpayer in respect to the travel, it was acknowledged by the Department of Education, that the experience in Canada would be of benefit to the taxpayer when he returned. It was decided in that case to allow a deduction equal to 75% of the expenditure incurred, with the remaining 25% being an expense in earning the salary received whilst in Canada. As the Canadian income was exempt from tax in Australia, the portion of the expenditure applicable to that income was not deductible in Australia. The 75/25 apportionment was based on a reasonable estimate since no exact division of the items of expenditure was possible. In your case, your participation in a work exchange program as part of your employment. There is a direct connection between the work you did and your income earning activities. The essential character of the travel costs is that of expenditure incurred in order to gain or produce assessable income because the experience gained will assist you with your existing employment duties. Therefore, the expenses incurred are allowable deductions under section 8-1 of the ITAA 1997.

You participated in a work exchange program. | Your employer continued to be your employer during this period and you recommenced employment with them upon your return. | You incurred return airfare expenses with regard to your exchange.