Private ruling: Self education expenses for overseas study
Date of advice: 25 August 2017
Published: December 2017
Ruling period: 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for your course fees and application fees incurred for overseas study? | A1: Yes | Q2: Are you entitled to a deduction for airfares incurred in relation to the overseas study? | A2: Yes | Q3: Are you entitled to a deduction for the portion of your course fees that relate to medical insurance and health service fees? | A3: No | Q4: Are you entitled to a deduction for expenses incurred in obtaining a study visa for the overseas country? | A4: No

Relevant facts and circumstances: You work as a senior staff member for a State Government Department. You are an expert in your field especially from a government perspective as you provide advice to government officials, public servant officials and Parliament officials. You were approved unpaid leave of absence by your employer from your current position from 2017 to 2018 to undertake studies at an overseas university on a full-time basis. These studies will allow you to maintain and improve your current knowledge and skills in your field and will enhance your professional reputation and ability to perform your work. You travelled overseas in 2017 to commence your study as a full time student. You will return to Australia in 2018. You incurred costs for course fees; student visa fees; airfares; textbooks/stationery and health insurance that you paid in Australian dollars.

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

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 discusses the circumstances under which self-education expenses are deductible. Self-education expenses are an allowable deduction 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; (1961) 8 AITR 406). 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. In your case, at the time you undertook the study, you were employed by a State government agency as a senior staff member. Your duties include a variety of advanced senior tasks by providing advice to other government and public service officials, and Parliamentary officials. You consider that, by undertaking this study will enhance your knowledge and legal abilities to strengthen your advice on governance. This study will increase your skills and make you more effective in your role when you return to Australia to your position. This study will also enhance your professional standing within this field and enable your income earning capacity to increase. We accept that this study will enhance your existing skills and knowledge that you use in your current employment at this time. Therefore, a deduction will be allowable for the self-education expenses you have incurred in relation to your overseas study, to the following extent: | Detailed Reasoning - Course fees and application fees: TR 98/9 provides that course and tuition fees incurred in attending an educational institution where there is a necessary and relevant connection with the earning of assessable income is allowable under section 8-1 of the ITAA 1997. Therefore, the expenses you incurred for course fees and application fees relating to this study at an overseas university are deductible self-education expenses. However, health insurance costs are generally considered to be a private expense. You are therefore not entitled to a deduction, under section 8-1 of the ITAA 1997, for the portion of the fees that were incurred for health services and medical insurance as the expenditure is private in nature. When claiming these deductions, the expenses incurred must be translated (converted) to Australian dollars before including them in your return. From 1 July 2003, there are specific rules which tell you which exchange rate to use to convert these amounts. Generally, these require amounts to be converted at the exchange rate prevailing at the time of a transaction, or at an average rate. The average rates are published on the Tax Office website and can be accessed through the fact sheet Foreign exchange (forex): general information on average rates. | Detailed Reasoning - Airfares: Taxation Ruling TR 98/9 provides 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. They are considered part of the necessary costs of participating in the tour or attending the conference or seminar or the educational institution. In your case, your travel to an overseas country to undertake your course of study is an allowable deduction. You will only be allowed the full cost of your airfares where you travel directly to and/or from your destination ( Case 4321 19 ATR 3465). If you break your travel for private purposes, a portion of your expenses will be private in nature and not deductible. In your case, your current travel itinerary states you are flying directly from Australia to an overseas destination and you have paid your return flight for 2018. The itinerary indicates no other stop over. However, if this changes during or after your studies, you will need to apportion the costs incurred to reflect this for private purposes. | Detailed Reasoning - Visa: The purpose of obtaining a visa is to allow you to enter and stay in an overseas country. The expense is not considered to be incurred in the course of gaining or producing your assessable income. Therefore, the expense is private in nature and is not an allowable deduction under section 8-1 of the ITAA 1997. | Detailed Reasoning - Books, journals and stationery: Expenditure on professional and trade journals is allowable under section 8-1. Expenditure on items of stationery, such as pens, pencils and photocopying, is also allowable. Reference books and textbooks are generally used during the course of study and, in most cases, only in the year of purchase. In such circumstances, you can deduct the cost of the books under section 8-1 of the ITAA 1997. However, if you intend to use them for a number of years as reference material for income-earning purposes, you deduct an amount for the decline in value of the books under section 40-25 of the ITAA 1997. In some circumstances an immediate deduction for books costing $300 or less may instead be available by meeting the conditions in subsection 40-80(2) of the ITAA 1997 (see paragraph 82). In your case you are likely to incur these costs in the 2018 financial year. | Detailed Reasoning - Limit on deductibility Section 82A: 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 website.