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

Ruling: A1: Yes | Q1: Are you entitled to a deduction for expenses you incurred for airfares, accommodation, meals, study books and travel expenses in Country C? | A2: Yes | Q2: Are you entitled to a deduction for expenses you incurred for your visa application and travel insurance? | A3: No

Relevant facts and circumstances: You are a resident for tax purposes. You have a tertiary degree and you commenced employment as a departmental head for your employer on a full-time basis. You undertook a residential post graduate degree and part of this degree included an overseas exchange study program with a university in country C. Your family remained in Country A. The subjects in the degree are directly related to the work you have been doing. The postgraduate course program offered was undertaken to enhance existing capabilities, skill and knowledge to produce improved strategies for your employment. The course provides practical tools which are important and are required for proper discharge of your current duties as a departmental head. You have incurred course fees, study books, airfares, travel insurance, visa application fee, and accommodation, meals and transport expenses from your temporary place of residence in Country C to the university. Your employer provided paid study time leave and paid leave while overseas but no allowance or reimbursement was provided for your study. All course fees have been paid under FEE-HELP. You have documentation to support the expenses incurred.

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, private or domestic nature, or relate to the earning of exempt income. Taxation Ruling TR 98/9 (TR 98/9) provides the Commissioner's view for the circumstances under which self-education expenses are allowable as a deduction. TR 98/9 provides that 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 taxpayers 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; TR 98/9). In your case, there is a sufficient connection between the course you have undertaken and your current income producing activities. You undertook the postgraduate course to enhance your existing capabilities, skills and knowledge that are required in the performance of your current employment duties as a departmental head in your region. Consequently, the self-education expenses incurred in undertaking this course have the necessary and relevant connection with the earning of your assessable income and are deductable under section 8-1 of the ITAA 1997. | Detailed Reasoning - Airfares: Paragraph 111 of TR 98/9 states 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. They are part of the necessary cost of participating in the tour or attending the conference or seminar or the educational institution. Since the airfares that you have incurred were in order for you to attend the university in Country C (an educational institution) in connection with your self education, you are entitled to claim a deduction for this cost. | Detailed Reasoning - Meals and 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 states 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. As with your airfares, the meal and accommodation expenses that you have incurred were in order for you to attend an educational institution. Since the expenses are in connection with a self education activity, you are entitled to claim a deduction for such costs. | Detailed Reasoning - Study books: Textbooks are generally used during the course of study and, in most cases, only in the year of purchase. In such circumstances, the cost of the study books is allowable under section 8-1 of the ITAA 1997. | Detailed Reasoning - Travel: You can claim expenses for travel between your temporary place of residence and your place of education while in Country C. | Detailed Reasoning - Visa: The visa is required in order for you to travel to Country C to study. The purpose of obtaining the visa is to allow you to live in Country C. The expenses will not be incurred in the course of gaining or producing your assessable income. You are not entitled to a deduction for your visa application as it is private in nature. | Detailed Reasoning - Travel insurance: Travel insurance policies usually cover items that are private in nature such as illness, loss of baggage, and theft or damage to belongings. For this reason you are not entitled to claim a deduction for travel insurance under section 8-1 of the ITAA 1997 as the expenditure is private. This is confirmed by ATO Interpretative Decision 2001/615 which deals with deductibility of travel insurance. You are not entitled to a deduction for your travel insurance as it is private in nature. | Detailed Reasoning - Further information: Please note that the self-education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. An explanation on how this provision operates is provided at paragraphs 119 to 155 of TR 98/9, which can be accessed on the Tax Office's website at www.ato.gov.au.

Subject: Self-education expenses: Are you entitled to a deduction for self-education expenses for a postgraduate degree?