Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)Chapter 3: Removing the self-education expenses threshold
Outline of chapter
3.1 Schedule 3 to the Bill removes the $250 non-deductible threshold for work-related self-education expenses by repealing section 82A of the ITAA 1936.
3.2 Removing the $250 non-deductible threshold reduces compliance costs for individuals claiming self-education expense deductions and simplifies the tax return process.
Context of amendments
3.3 In December 2020, Treasury released a discussion paper Education and training expense deductions for individuals. It consulted on allowing individuals to deduct education and training expenses they incur, despite the expense not being related to their current employment.
3.4 The paper also canvassed the removal of the $250 non-deductible self-education expenses threshold.
3.5 Stakeholders unanimously supported the removal of the $250 threshold as it no longer serves its original purpose and adds regulatory costs and complexity for individuals.
3.6 The removal of the $250 work-related self-education expense threshold was included in the 2018-22 Budget.
Operation of existing law
3.7 Self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a sufficient connection to the individual's current income-earning activities. A sufficient connection exists if the study enables the individual to maintain or improve required skills or knowledge for their employment or is likely to lead to an increase in the individual's income from their current income-earning activities.
$250 self-education expense threshold
3.8 In certain circumstances, section 82A of the ITAA 1936 requires individuals to reduce their claim for self-education expenses by $250.
3.9 Where section 82A of the ITAA 1936 applies, the total allowable deduction for self-education expenses under section 8-1 of the ITAA 1997 cannot be greater than the amount by which the net amount of 'expenses of self-education' exceeds $250. In practice, this means only the excess of the self-education expenses over $250 may be considered for deduction under section 8-1 of the ITAA 1997.
3.10 Section 82A of the ITAA 1936 applies to expenses of self-education necessarily incurred by an individual for or in connection with an organised course of education provided by a school, college or university, on a full or part time basis.
3.11 An individual may have expenses that are not deductible under section 8-1 of the ITAA 1997 that are still considered 'expenses of self-education' for the purpose of the section 82A calculation (e.g., childcare costs related to attendance at self-education activities). These self-education expenses count towards (reduce) the $250 threshold but cannot reduce the amount by more than $250.
3.12 'Expenses of self-education' do not include student contribution amounts or amounts in repayment of a debt specified in subsection 82A(2) of the ITAA 1936. These same amounts are also not deductible under the ITAA 1997 (see section 26-20 of the ITAA 1997).
Self-education expenses and fringe benefits tax
3.13 Where an employer provides a fringe benefit comprising work-related self-education expenses to an employee, the employer can reduce the taxable value of the fringe benefit by applying the relevant 'otherwise deductible' rule for the fringe benefit in section 19, 24, 37, 44 or 52 of the FBTAA 1986.
3.14 The 'otherwise deductible' rule allows the employer to reduce the taxable value of the fringe benefit by the amount of the income tax deduction the employee would otherwise have been entitled to claim had the employee incurred (and not been reimbursed for) the relevant costs.
3.15 The 'otherwise deductible' rule disregards section 82A of the ITAA 1936 for the purpose of calculating an employee's hypothetical deduction to determine any reduction in the taxable value of the fringe benefit.
3.16 An employee cannot claim a deduction for work-related self-education expenses where their employer pays or reimburses the expense (i.e., provides an expense payment fringe benefit) (see section 51AH of the ITAA 1936).
Background to the existing law
3.17 The $250 non-deductible threshold for self-education was introduced in 1975 alongside a concessional tax rebate for expenditure on self-education. As the concessional rebate was $250, the non-deductible threshold was set at $250 to ensure only education expenses above that amount could qualify for a deduction. This approach was designed to prevent individuals from claiming both the tax rebate and a tax deduction for the same expenses.
3.18 The concessional rebate was repealed in 1985 but the $250 non-deductible threshold was retained. As a result, the $250 threshold no longer serves its original purpose of preventing overlapping claims.
Summary of new law
3.19 Schedule 3 to the Bill removes the $250 non-deductible threshold for work-related self-education expenses. Individuals must determine the deductibility of their self-education expenses by reference to section 8-1 of the ITAA 1997, as affected by other general deduction limitations and any relevant specific deductions.
Detailed explanation of new law
3.20 Schedule 3 to the Bill removes the $250 non-deductible threshold for self-education expenses. The removal of this threshold reduces compliance costs for individuals calculating their work-related self-education expense deductions. [Schedule 3, item 26, section 82A of the ITAA 1936]
Determining the deductibility of self-education expenses
3.18 Following the amendments, individuals continue to determine the deductibility of their self-education expenses by reference to section 8-1 of the ITAA 1997, as affected by other general deduction limitations and any relevant specific deductions.
3.22 Individuals can claim deductions for self-education expenses under section 8-1 of the ITAA 1997 if:
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- the expense is incurred in gaining or producing assessable income;
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- the expense is not private, domestic, or capital in nature; and
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- the deduction is not prevented by a provision of that Act.
3.23 The repeal of section 82A of the ITAA 1936 does not affect the types of self-education expenses that are deductible under section 8-1 or other provisions of the ITAA 1997. For example, the costs of textbooks, stationery, and professional journals (among other expenses) are still deductible, while certain student contributions and debt repayment amounts referred to in section 26-20 of the ITAA 1997 are still not deductible (see paragraph 3.11). This is because, prior to the repeal, the tax law limited the amount (not the type) of deductions that could be claimed for self-education expenses.
3.24 The amendments reduce compliance costs for individuals because they no longer need to reduce their self-education expenses by $250 before claiming a deduction under section 8-1 of the ITAA 1997. In practice, this means individuals must continue to maintain records of their deductible self-education expenses. However, they no longer need to keep records of any non-deductible self-education expenses for tax purposes that, prior to the amendments, were first offset against the $250 non-deductible self-education threshold.
Example 3.1 Deduction for self-education expenses
Anna is a part-time social worker who is undertaking additional training related to her employment. Anna is eligible to deduct expenses associated with her training, including tuition fees and textbooks, which total $5,000 for the income year. Anna has also incurred $150 in non-deductible childcare expenses and $150 in non-deductible travel expenses while attending her training activities.
With the repeal of the $250 non-deductible self-education threshold, Anna is able to claim a deduction of $5,000 but does not need to calculate or keep records of her non-deductible expenses to offset the $250 reduction to complete her income tax return.
Prior to the repeal of the threshold, Anna was required to reduce the amount of her deduction by $250. As her non-deductible expenses fully offset the $250 reduction, Anna would still have been able to claim a deduction of $5,000 but would also have had to calculate and keep records of her non-deductible expenses for the required period after receiving her assessment.
Consequential amendments
Income Tax Assessment Acts 1936 and 1997
3.25 Schedule 3 to the Bill repeals references to section 82A and 'of this Act' in other provisions of the ITAA 1936. These references are redundant following the repeal of section 82A of the ITAA 1936. [Schedule 3, items 18 to 25 and 27, paragraphs 18A(3)(b), 26AJ(2)(b), 26AJ(2)(d) and 26AJ(3)(b) and subsection 109CA(5) of the ITAA 1936]
3.26 Schedule 3 to the Bill also repeals references to section 82A in the ITAA 1997 as they are no longer needed. [Schedule 3, items 28 to 32, section 12-5 of the ITAA 1997]
Fringe Benefits Tax Assessment Act 1986
3.27 Schedule 3 to the Bill repeals references to section 82A in the FBTAA 1986 as they are no longer needed. [Schedule 3, items 1, 4, 6, 8 to 10, 12, 14, 16, paragraphs 19(1)(b), 24(1)(b), 24(1)(ba), 37(b), 37(c), 44(1)(b), 44(1)(ba), 52(1)(b) and 52(1)(ba) of the FBTAA 1986]
3.28 Consequently, Schedule 3 to the Bill reinserts a reference to the ITAA 1936 into sections 19, 24, 44 and 52 of the FBTAA 1986 to ensure they continue to refer to deductions otherwise allowable under the ITAA 1936 or 1997. [Schedule 3, items 2, 3, 5, 7, 11, 13, 15, 17, paragraphs 19(1)(b), 19(1)(ba), 24(1)(b), 24(1)(ba), 44(1)(b), 44(1)(ba), 52(1)(b) and 52(1)(ba) of the FBTAA 1986]
3.29 The repeal of the $250 non-deductible self-education expenses threshold does not affect the operation of the 'otherwise deductible' rule in sections 19, 24, 37, 44 and 52 of the FBTAA 1986. Prior to the repeal of section 82A of the ITAA 1936, employers would calculate the amount 'otherwise deductible' by reference to the amount of the deduction allowable to the employee but for that section (see paragraph 3.13). Accordingly, with the repeal of section 82A of the ITAA 1936, the references in the FBTAA 1986 to that section become redundant.
Commencement, application, and transitional provisions
Commencement
3.30 Schedule 3 to the Bill commences on the first 1 January, 1 April, 1 July or 1 October to occur after the day the Bill receives the Royal Assent. [Clause 2, table item 4]
Application
3.31 The amendments to the ITAA 1936 and ITAA 1997 in Schedule 3 to the Bill apply to assessments for the 2022-23 income year and later income years. [Schedule 3, subitem 33(1)]
3.32 The amendments to the FBTAA 1986 in Schedule 3 to the Bill apply to the FBT year starting on 1 April 2023 and to later FBT years. [Schedule 3, subitem 33(2)]
3.33 The amendments to the FBTAA 1986 remove redundant references to section 82A of the ITAA 1936 following the repeal of that section. These amendments apply from the start of the first full FBT year following the application of amendments to the ITAA 1936 and 1997 to prevent unintended practical impacts or compliance costs for employers.