Private ruling: Self-education expenses
Date of advice: 6 September 2021
Published: November 2021
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim study expenses incurred while studying a Master of Business Administration at University A? | A1: Yes

Relevant facts and circumstances: You are employed by Company A as a Manager. Your employer has supported and encouraged you to study a Master of Business Administration (MBA) but provides no financial support for such studies. You applied to University A to study an MBA and this course commenced in early 20XX. The degree spans X years of study. You incurred expenses while studying an MBA and these included textbooks and internet charges. You are receiving FEE-HELP assistance with each unit studied. You anticipate the FEE-HELP will pay $XXX for each unit studied. You also estimate approximate costs of $YYY per semester for textbook and internet costs. Your duty statement for your role shows the following key accountability and functions: • Develops, coordinates, and implements marketing plans to increase community knowledge, awareness of and participation in Company A programs. • Designs, executes, and evaluates marketing for our services, and events on a variety of media • Ensure all marketing efforts serve to achieve immediate and long-term business goals, identifying and executing improvements for processes, content, and lead generation • Drives trials to our programs through digital and print platforms. • Develops content for digital and print platforms. • Documents, develops, and tells the brand story of Company A. • Keeps the community up to date on important dates and events • Is the first point of contact for all advertising, media, and promotional opportunities. • Provide market research, forecasts, competitive analyses, campaign results, and consumer trends

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

Reasons for decision: Summary: In general terms, self-education expenses incurred in attending educational institutions are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) where the expenses have the necessary connection in gaining or producing the taxpayer's assessable income. For a deduction of self-education expenses to be allowable you also need to meet the following governing principles contained in Taxation Ruling 98/9 - Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9). a) The taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge. b) The study of a subject of self-education objectively leads to, or is likely to lead to, an increase in the taxpayer's income from his or her current income-earning activities in the future. | Detailed Reasoning - Types of self-education expenses allowable: Under TR 98/9, subject to the general tests under section 8-1 being met, the following types of expenses related to self-education are allowable: a) course or tuition fees of attending an educational institution, work-related conference or seminar, including student union fees; b) the cost of professional and trade journals, textbooks and stationery; c) airfares incurred on overseas study tours or sabbatical, on work-related conferences or seminars, or attending an educational institution. They are part of the necessary cost of participating in the tour, etc.; d) subject to paragraph 24(c) of this Ruling, where a taxpayer is away from home overnight, accommodation and meals expenses incurred on overseas study tours, on work-related conferences or seminars, or attending an educational institution; and e) interest incurred on borrowed monies where the funds are used to pay for self-education expenses associated with a course of education, that enables a taxpayer to maintain or improve his or her skill or knowledge or is likely to lead to an increase in income from the taxpayer's current income-earning activities. Regard must be had to the connection between the interest expense and the income-earning activity in each income year interest is claimed because a change in circumstances, for example, a change of employment, may mean that the necessary connection no longer exists. Taxation Ruling TR 97/7 Income tax; section 8-1 - meaning of "incurred" - timing of deductions deals with whether an expense has been incurred. It states: 6. The courts have been reluctant to attempt an exhaustive definition of a term such as 'incurred'. The following propositions do not purport to do this, they help to outline the scope of the definition. The following general rules, settled by case law, assist in most cases in defining whether and when a loss or outgoing has been incurred: (a) 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. Accordingly, a loss or outgoing may be incurred within section 8-1 even though it remains unpaid, provided the taxpayer is 'completely subjected' to the loss or outgoing. That is, subject to the principles set out below, it is not sufficient if the liability is merely contingent or no more than pending, threatened or expected, no matter how certain it is in the year of income that the loss or outgoing will be incurred in the future. It must be a presently existing liability to pay a pecuniary sum; (b) a taxpayer may have a presently existing liability, even though the liability may be defeasible by others; (c) a taxpayer may have a presently existing liability, even though the amount of the liability cannot be precisely ascertained, provided it is capable of reasonable estimation (based on probabilities); (d) whether there is a presently existing liability is a legal question in each case, having regard to the circumstances under which the liability is claimed to arise; (e) in the case of a payment made in the absence of a presently existing liability(where the money ceases to be the taxpayer's funds) the expense is incurred when the money is paid. | Detailed Reasoning - Application to your circumstances: In your situation we are satisfied that you have a genuine desire and need to maintain or improve your skills and knowledge as a manager. The course undertaken is designed to improve your skills in this field. The Commissioner accepts there is an identifiable nexus or connection between the course and your employment. The course undertaken is useful to your employment and has sufficient nexus with your employment duties as to justify deductibility. Consequently, your self-education expenses for the course are sufficiently connected to your employment. The costs are therefore deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Guidance on Expenses: Your reasonable study related expenses will be deductible to the extent that these expenses relate to study or other work-related activities. You have identified textbooks and internet expenses as study related expenses you may wish to claim as deductions. The following comments are provided as guidance to assist you in lodging such claims. | Detailed Reasoning - Guidance on Textbooks: You have demonstrated that the course of education has a nexus to your current employment. Therefore, as outlined in TR 98/9 you are allowed a deduction for your textbooks incurred in attending an educational institution under section 8-1 of the ITAA 1997. | Detailed Reasoning - Guidance on Internet Expenses: PS LA 2001/6 Verification approaches for home office running expenses and electronic device expenses states that usage of electronic devices in relation to a course of self-education may be deductible where a nexus can be established between the device usage expenses and the income earning activity. However, any personal device usage (as well as by other occupants) must be considered when determining the work-related percentage. Paragraph 9 states the two primary measures that can impact on work component percentage include: • the time spent by the taxpayer using the device for work purposes compared to time spent by all occupants using the device for private purposes (time basis) and • data used for work purposes compared to data used for private purposes of all occupants (data basis) Where itemised accounts are not available, a reasonable estimate of work-related expenses, based on diary entries of usage over a period of one month, together with relevant paid accounts, will be acceptable for substantiation purposes. The following example from PS LA 2001/6 provides one example of how to calculate deductibility - Example 2 - internet expenses - sole user - time basis Ben is an employee IT technician who generally works from home three days per week (eight hours per day). In order for Ben to log on to his employer's network he is required to use his personal home internet connection. This expense is not reimbursed by Ben's employer. Considering Ben's usage is more than incidental he decides to calculate his actual expenses incurred using the 'time basis' method. Ben has determined his time using the internet for work over a representative four-week period as 96 hours (24 hours per week). However, to determine his time using the internet for non-work purposes Ben considers all of the private devices that use the internet connection. This includes his: • gaming console for online gaming • smart TV for streaming television and movies, and • mobile phone to browse the internet. Ben estimates that he is directly or indirectly (for example, automatic updating) using the internet connection in relation to these devices for four hours per weekday and 16 hours on the weekend. This equates to 144 hours over a representative four- week period. Based on this analysis, Ben is using the internet for a total of 240 hours in a four- week period, of which 96 hours, or 40%, is work-related. Ben's deduction is calculated as: | Detailed Reasoning - Deduction amount: Internet expenses 40% of monthly expenses ($60) for 11 months (taking into account Ben's four weeks annual leave). $264.00 Accordingly, reasonable study related internet expenses will be deductible to the extent that these expenses relate to study or other work-related activities.