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

Ruling: Q1: Are the net costs of tuition and associated fees, textbooks and stationery incurred in relation to your overseas study deductible self-education expenses? | A1: Yes. | Q2: Are the costs of tuition and associated fees incurred and paid in the 2011-12 financial year deductible in that year even though the course of study has not begun in that year? | A2: Yes.

Relevant facts and circumstances: You are a professional person. You are planning to travel overseas to study a course. Your employer normally requires employees leaving to undergo further study to resign and reapply for their former position on return to work. However, your employer is making an exception in your case, granting you a leave of absence to undertake this study. Upon completion of the course, your employer will allow you to return at your current job level. However, your qualification may allow you to negotiate a more senior position in the firm. You will incur tuition fees and activity costs associated with these fees. You are required to purchase stationary, textbooks and other study materials in relation to the course. You will receive financial aid, and scholarships comprising an amount to cover airfares and a grant. You will use these amounts to cover your health insurance fees, part of your tuition fees, your airfares, and your living expenses. The sole reason for your travel is to undertake the course. You will arrive overseas in the 2012-13 financial year, to begin your course shortly afterwards. In the 2011-12 financial year you have paid a non-refundable deposit to secure your place in the course, lodged an electronic "Source of Support" form, accepted the study offer, entered into a financial aid agreement, obtained a leave of absence from your employer, transferred the full cost of your tuition and living costs to an overseas bank account and arranged accommodation overseas. You intend to pay the tuition costs prior to 30 June 2012.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 82A | Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you may deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income. Taxation Ruling 1998/9 (TR 98/9) considers the deductibility of self-education expenses incurred by an employee or a person in business. At paragraph 12 it is provided that self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income-earning activities. It is considered that your study is directly related to your current income earning activities as a solicitor in a private practice. It is also noted that your employer has supported your decision to undergo further study through making an exception in their usual policy and offering you a leave of absence. Paragraph 23 of TR 98/9 provides that course or tuition fees of attending an educational institution and the cost of textbooks and stationery are allowable self-education deductions. It is considered that you may claim a deduction for these self-education expenses. The expenses may be claimed when they are incurred. While there is no statutory definition of the term 'incurred', Taxation Ruling 1997/7 (TR 97/7) examines the meaning of the term in relation to the timing of deductions. Generally, you incur an outgoing at the time you owe a present money debt that you cannot escape, subject to general rules provided by case law. Paragraph 6 of TR 97/7 provides that a taxpayer need not actually have paid any money to have incurred an outgoing provided the taxpayer is definitively committed in the year of income. You have paid a deposit to secure your place in the class and in the 2011-12 financial year completed and submitted a "Source of Support" form which committed you to pay for the cost of the course. Additionally, you have taken a leave of absence from your place of work and established living arrangements overseas to undertake the course. You also intend to pay the remaining tuition costs by 30 June 2012. It is considered that you were definitively committed to the costs of tuition and associated fees in the 2011-12 financial year, and may claim these deductions in that year. The costs of textbooks, journals and stationery will be incurred when they are purchased, as though they are necessary to complete your course, they do not form part of the expenses required to be paid to confirm your enrolment. Furthermore, you have stated that you will not be purchasing them until after you arrive at your destination in mid 2012. Hence you are not definitively committed to these expenses in the 2011-12 financial year and cannot claim them at that time as they have not yet been incurred. | Detailed Reasoning - Limit to the deductibility of self-education expenses: In certain circumstances you may have to reduce your allowable self-education expenses by $250 in accordance with section 82A of the Income Tax Assessment Act 1936 . However you may have other types of expenses some of which are not allowable as a deduction that can be offset against the $250 before you reduce the amount you can claim for allowable expenses. Further information on how to work out your self-education expenses is provided at paragraphs 119 to 155 of TR 98/9. This ruling is available on the Tax Office website: www.ato.gov.au

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