Private ruling: Self-education expenses
Published: August 2011

Ruling: Questions and answers: | Are you entitled to a deduction for your personal airfares incurred while undertaking training in Country X? | Yes | Are you entitled to a deduction for airfares expenses for your family who accompanied you to Country X? | No | Are you entitled to a deduction for any accommodation expenses incurred while living in Country X? | No | Are you entitled to a deduction for any relocation expenses incurred in relation to your training in Country X? | No

Relevant facts and circumstances: You were a resident of Australia for taxation purposes during the 2009-10 and 2010-11 financial years. You were full time employed by an Australian institution until early 2010. You have been in a training program in relation to your employment since a few years. You decided to undertake the final year of the training in Country X. You left Australia in mid 2010. Prior to your departure from Australia, you were employed as a specialist. You were given leave without pay to complete your training in Country X. The training you are undertaking is under the control of an eminent body that has an education board which sets out the training requirements. The trainees are encouraged to find posts that are overseas as they provide invaluable experience outside the normal practice setting. There are no posts in Australia that provide exposure to the same training in your field of specialisation. You are being trained by a recognised world expert in Country X with experience in this field greater than any anyone else within Australia. You study during work time as well as in your own time. You take study leave from work for conference attendance. Your training started in early 2005 and your training in your specialised field commenced in early 2007. For the final year of the training you have taken a post overseas in Country X. You have been working in Country X since late 2010. You will be eligible to finish training in late 2011 pending satisfactory completion of all training requirements. The costs you have incurred in re-allocating for this training year include: · Flights · Removalists · Storage · GMC registration · Visas for children · Rental · Short term accommodation on arrival · Shipping of goods You paid your training fees yourself. You did not take any government assistance such as HELP or PELS to pay your fees. All your assessable income in the 2009-10 financial year was from Australian sources, comprising of salary and wages and fees as declared in your tax return. Your assessable income in the 2010-11 financial year comprises of: · salary from your employer in Country X as part of your training course · additional income from employment in Country X · rental income from Australia Some of your fees in the 2009-10 financial year were received in the 2010-11 financial year. This income is Australian sourced and will be declared in your 2010-11 tax return.


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, private or domestic nature, or relate to the earning of exempt income. Taxation Ruling TR 98/9 provides the Commissioner's view with regard to self-education expenses. The ruling provides that self-education expenses incurred by a taxpayer will qualify for deduction under section 8-1 of the ITAA 1997 where there is a sufficient nexus to the production of assessable income. Furthermore, paragraph 14 of TR 98/9 states: 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, the self-education expenses are allowable as a deduction. The program you are undertaking overseas is directly relevant to your employment duties as a medical practitioner and your interest in the field , which is your area of specialisation. Your employer supports your study by providing you study leave and you have stated that it will lead greater earning capacity. You have stated that all your assessable income in the 2009-10 financial year was from Australian sources, comprising of salary and wages and fees from private consultations as declared in your tax return. Your assessable income in the 2010-11 financial year comprises of: · salary and wages as part of your training course in Country X · additional income from private consultations · rental income from Australia · Australian sourced consultation fees relating to the 2009-10 financial year | Detailed Reasoning - Airfares: Since the airfares expenses that you have incurred are necessary for you to attend and complete the training program in Country X, they are in connection with your self-education. TR 98/9 states 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. This expense is considered to be a necessary cost of attending the tour or educational institution. Accordingly the cost of your return airfares would be an allowable deduction under section 8-1 of the ITAA 1997 as there is a direct nexus with your employment activities. The airfares for your family members are private and domestic in nature and therefore are not allowable deductions under section 8-1 of the ITAA 1997. | Detailed Reasoning - Accommodation: Expenditure on accommodation and meals ordinarily has the character of a private or domestic expense. However, the occasion of the outgoing may operate to give the expenditure the essential character of an income-producing expense. Paragraph 89 of TR 98/9 elaborates: Where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meals expenses incurred are deductible under section 8-1. (Examples include an overseas study tour or sabbatical, a work-related conference or seminar or attending an educational institution.) They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature because its occasion is the taxpayer's travel away from home on income-producing activities. However, paragraph 24 (c) of TR 98/9 explains that expenditure on meals and accommodation will not be allowable as a self-education deduction where a taxpayer has travelled to another location and has established a new home. Paragraph 93 of TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. These factors include: · the total duration of the travel; · whether the taxpayer stays in one place or moves frequently from place to place; · the nature of the accommodation, e.g., hotel, motel, or long term accommodation; · whether the taxpayer is accompanied by his or her family; · whether the taxpayer is maintaining a home at the previous location while away and · the frequency and duration of return trips to the previous location. The question of whether a new home has been established depends on all the facts. There is no one test to satisfy all the circumstances. TR 98/9 provides a number of examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. Most applicable to your case is Example 5 at paragraphs 104 and 105, which states: Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out. The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany. You intend to remain in one location for the duration of your stay overseas. You will not be moving from place to place. You will be situated in Country X for around one year with your family. These factors all lend weight to the assertion that you have established a new home overseas. Therefore you are not entitled to claim a deduction for the expenses that you incurred on accommodation while you were overseas. | Detailed Reasoning - Relocation expenses: Taxation Ruling IT 2481 discusses the travelling expenses of an employee moving to a new locality of employment. It provides information for taxpayers on the potential deductibility of relocation expenses. Paragraph nine of IT 2481 states: 'Where a taxpayer voluntarily transfers employment from one locality to new locality and incurs expenditure in moving from one place of residence to a new place of residence to take up duties of the new position that expenditure is not incurred, in the Commissioner's view, in gaining or producing assessable income and is not deductible under subsection 51(1) of the ITAA 1936. The taxpayer is not travelling on his or her work (c.f. Taylor v Provan (1973) A.C. 194 per Lord Wilberforce at p.215) but is travelling to his or her work. Nor is the taxpayer travelling between two places of employment.' The majority of cases dealing with relocation expenses have found the link between the income producing activities and the expenditure to be too remote. In Fullerton v. FC of T 91 ATC 4983; (1991) 22 ATR 757, where the taxpayer worked for the Queensland Forest Service (QFS) as a professional forester for over 20 years. In that time, QFS transferred him to a number of different locations. As a result of a reorganisation his position ceased to exist. He had no choice but to accept a transfer as he may have been retrenched. The QFS reimbursed a portion of the relocation expenses and the taxpayer claimed the remainder as a tax deduction. It was held that the expenditure on the taxpayer's domestic or family arrangements is not deductible under subsection 51(1) of the ITAA 1936, even though the expenditure had a causal connection with the earning of income. In Case V31 88 ATC 282; (1988) 19 ATR 3211, where the taxpayer claimed a part of his relocation costs, it was held that the relocation expenses were not incurred in gaining or producing assessable income. They were of a private and domestic nature and were therefore not deductible. In Case V96 88 ATC 634, the taxpayer claimed rent and electricity expenses when he was sent to work in southern New South Wales while his wife and family stayed in northern New South Wales. His claims were disallowed as the expenditure was of a private and domestic nature. Todd J stated at p 636: 'Furthermore, even if it was arguable that the expenditure fell within the first limb of subsection 51(1) of the ITAA 1936, then the amounts would be caught by the exemption in that sub-section relating to amounts which are "private or domestic" in nature. This conclusion is clearly supported by Faichney in Handley v FC of T 81 ATC 4165 and Forsyth v FC of T 81 ATC 4157. The fact that it is inconvenient to take one's family to a new work location, thus necessitating the maintenance of two domestic residences, is a problem of a private nature. The difficult situation arose out of circumstances germane to the applicant's personal situation and not out of those related to his job.' In view of the above, relocation expenses, notwithstanding the fact that they are a prerequisite to the derivation of income, are not deductible to an employee regardless of whether the employee is commencing a new employment or transferring within an existing employment. Your circumstances indicate that your relocation expenses, to establish a new home, are incurred within your existing employment. You are not considered to be travelling 'on work' and your relocation expenses are not considered to be incurred in gaining or producing assessable income.

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