Private ruling: Self-education expenses
Date of advice: 2 August 2019
Published: September 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will expenditure on tuition fees and airfares for self-education be an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You are employed. You applied for a position at a program at a foreign university. This course will take place for nine months. The purpose of participating in the course was to further develop your skills and knowledge relevant to your employment. You have been granted a leave of absence from your employer for the time you are completing the program. You will return to this employer once you have completed the program. You have prepaid an amount for tuition fees and for residence fees. You incurred expenses for airfares to travel to the country where the university is at. A percentage of the cost of the airfare will be related to private travel.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1936 section 82KZM | Income Tax Assessment Act 1936 subsection 82KZM(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 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 as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction. In addition, 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. 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 taxpayer's 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. TR 98/9 at paragraph 111 states that where airfares are a necessary part of the cost of attending an educational institution overseas, then those expenses are deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Prepaid expenses: 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 relevant expenditure not in carrying a business and the eligible service period is: · Longer than 12 months · 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. | Detailed Reasoning - Application to your circumstances: In your case it is accepted that the study has sufficient nexus to your income earning activities. Therefore, the expenses incurred for tuition fees paid and 85% of the costs of the airfares from Australia to the foreign country are an allowable deduction under section 8-1 of the ITAA 1997. There will be no need for apportionment over the years under the prepayment rules as the eligible service period is shorter than 12 months and does not end after the last day of the income year after the one in which the expenditure was incurred. | Detailed Reasoning - Limitation on deductibility of expenses: Section 82A of the ITAA 1936 operates to limit the amount of self-education expenses otherwise allowable under section 8-1 of the ITAA 1997. Only the excess of the self-education expenses over $250 may be considered for deduction under section 8-1.