Draft Taxation Ruling

TR 2023/D1

Income tax: deductibility of self-education expenses incurred by an individual

• Please note that the PDF version is the authorised version of this draft ruling.
  This document has been finalised by TR 2024/3.
  There is a Compendium for this document: TR 2024/3EC .

What this draft Ruling is about

1. This draft^[1] Ruling sets out the principles on the deductibility of self-education expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

2. The Ruling also discusses the types of expenditure that can be deductible as a self-education expense, as well as those that cannot.

3. For the purpose of this Ruling, self-education includes:

(a)

courses undertaken at an educational institution (whether leading to a formal qualification or not)

(b)

courses provided by a professional or industry organisation

(c)

attendance at work-related conferences or seminars

(d)

self-paced learning and study tours (whether within Australia or overseas).

4. This Ruling should be read in conjunction with Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997, which provides the foundation of general deductibility principles for work expenses^[2] under section 8-1.

5. All legislative references in this Ruling are to the ITAA 1997, unless otherwise indicated.

6. This Ruling does not address:

(a)

paragraph 8-1(1)(b), which deals with outgoings necessarily incurred by a business. We consider paragraph 8-1(1)(a) applies to individuals when claiming self-education expenses regardless of whether they are employed, contracted, or carrying on a business

(b)

substantiation^[3] and record-keeping^[4] requirements

(c)

section 82A of the Income Tax Assessment Act 1936 (ITAA 1936), which operated to limit the amount of expenses otherwise deductible.^[5] This section was repealed on 28 November 2022 with effect from 1 July 2022. Refer to Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (now withdrawn) for the Commissioner's view on how section 82A applied prior to being repealed.

7. While the older cases cited in this Ruling consider deductibility under subsection 51(1) of the ITAA 1936, the decisions in these cases and the discussion in this Ruling apply equally to section 8-1. All references to subsection 51(1) should therefore be taken as including a reference to section 8-1, and vice versa.

8. The examples in this Ruling are for illustration purposes only. You shouldn't assume that your situation will have the same outcome as the example, even if you have similar facts or undertake the same study as shown in the example. Differences in occupation and industry requirements, your specific income-earning activities, and the relevance of the expense to the income-earning activities may produce different outcomes.

Previous rulings

9. This Ruling updates and replaces TR 98/9 and paragraphs 11(d), 13(c), 43 and 44 of Taxation Ruling TR 92/8 Income tax: deductibility of self education expenses, which were reproduced in a note at the end of TR 98/9.

10. TR 98/9 and the relevant paragraphs from TR 92/8 are now withdrawn.

Ruling

Deductibility under section 8-1

11. Self-education expenses are deductible under section 8-1 to the extent that they:

(a)

are incurred^[6] in gaining or producing your assessable income, and

(b)

are not^[7]

(i)

capital^[8], private or domestic in nature

(ii)

incurred in gaining or producing exempt or non-assessable non-exempt income^[9]

(iii)

prevented from being deductible by a specific provision in the tax law.

12. A deduction is not available for self-education expenses incurred to the extent they are reimbursed.^[10]

In gaining or producing assessable income

13. To be deductible under section 8-1, expenditure must be able to be characterised as having been incurred in gaining or producing assessable income.^[11]

14. It is well established that the words 'in gaining or producing assessable income' are to be understood to mean 'in the course of' gaining or producing assessable income and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.^[12]

15. This means there must be a relationship, or close connection, between the expenditure and what it is that you do to produce your assessable income^[13], or if none is produced, would be expected to produce your assessable income.^[14]

16. It is not enough to show only that there is some perceived connection, general link or causal connection between the expenditure and the production of your income.^[15] The expenditure must have a close connection to the performance of the duties and activities through which you earn your income.

17. The question of what produces your assessable income should not be approached narrowly. It requires consideration of the tasks to be performed and the duties to be observed^[16] (referred to as your income-earning activities).

18. The reason or motive for undertaking the self-education is not determinative of whether the expense is incurred in gaining or producing your assessable income. In 'many, if not most, cases the objective relationship between the expenditure and that which is productive of income will provide a sufficient answer to the inquiry posed by [section 8-1]'.^[17]

19. Having the support or encouragement of your employer to undertake the self-education also isn't, by itself, determinative of whether the expense is deductible.^[18]

20. Furthermore, the fact that you incur an expense on a voluntary basis (that is, not at the direction of your employer) does not necessarily preclude a deduction.^[19]

21. A partial deduction may be appropriate where only part of your expense is for self-education connected with your income-earning activities or where only part of the self-education is relevant to your current income-earning activities.^[20]

22. The Commissioner considers self-education expenses to be incurred in gaining or producing your assessable income if either or both of the following apply:

(a)

Your income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables you to maintain or improve that skill or knowledge. ( Principle 1 )

(b)

The self-education objectively leads to, or is likely to lead to, an increase in your income from your current income-earning activities in the future. ( Principle 2 )

23. Self-education expenses are not incurred in gaining or producing your assessable income if any of the following applies:

(a)

The self-education will enable you to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in your current employment). This includes studies relating to a particular profession, occupation or field of employment in which you are not yet engaged. These expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income.^[21] ( Exclusion 1 )

(b)

You are not undertaking income-earning activities to derive assessable income at the time you incurred the expenses. These expenses are not connected to any income-earning activity at the time they are incurred.^[22] ( Exclusion 2 )

24. In practice, the principles and exclusions outlined in paragraphs 22 and 23 of this Ruling are not mutually exclusive and should not be considered in isolation. Furthermore, the many cases dealing with self-education expenses and section 8-1 are no more than examples of the application of these general principles and exclusions to the facts of those cases.

25. These cases provide an indication of the facts relevant in determining the characterisation of self-education expenses. As the High Court stated in Day, the expressions used in cases describe attributes of expenditure in those cases but are not exhaustive tests limiting the operation of the general deduction provision. It is always necessary to read the words of section 8-1 and apply them to the facts.

Principle 1: Income-earning activities based on skill or specific knowledge

26. Where your income-earning activities are based on the exercise of a skill or having specific knowledge, self-education expenses incurred to maintain or improve that knowledge or your ability to exercise those skills are deductible.^[23]

27. Whether the self-education enables you to maintain or improve a skill or specific knowledge is a question of fact to be determined by all the facts and circumstances of your particular case.

28. Courts and tribunals have found the following when considering whether self-education expenses were incurred to maintain or improve knowledge or skills:

(a)

If the self-education is too general in terms of your current income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. This is often the outcome for the cost of self-improvement or personal development courses because the knowledge and skills obtained is too general.^[24]

(b)

Self-education that results in you being better equipped to perform your current income-earning activities is deductible where the self-education has the requisite connection to your income-earning activities at the time.^[25]

(c)

Obtaining a higher degree of qualification within your profession or industry is deductible where the self-education has the requisite connection to your income-earning activities at the time.^[26]

(d)

Expenditure on an overseas study tour or trip has been found to be deductible in limited circumstances where the study tour or trip had the requisite connection to the income-earning activities at the time. Notable factors to demonstrate such a connection are

(i)

devoting all of your time while overseas to the advancement of your knowledge relevant to your work^[27]

(ii)

the tour or trip is undertaken while you are employed in the relevant role^[28]

(iii)

the tour or trip was not recreational or general in nature^[29], but rather showed a particular special circumstance to differentiate it from mere recreational satisfaction^[30]

(iv)

the tour or trip was requested or supported by your employer.^[31]

29. Expenses incurred on improving skills and specific knowledge are not of a capital nature – they do not amount to the acquisition of something of an enduring nature.^[32]

Example 1 self-education expenses deductible where they maintain or increase specific knowledge required in current position

30. Barry, a trainee accountant, is studying commerce part time at university as a full fee-paying student. He is allowed a deduction for the costs associated with the course because the course enables Barry to maintain or increase the specific knowledge required in his current position and to carry out his duties more effectively.

Example 2 – personal development course deductible to extent not reimbursed

31. Lorraine was recently promoted to a middle management position with her current employer. Her core duties were of a management nature and included the provision of written submissions, negotiation and liaison, facilitation and public speaking. When discussing a learning and development plan with her employer, they agreed that Lorraine needed to develop further leadership and communication skills in order to be fully effective in carrying out her current income-earning activities.

32. Lorraine attended a personal development course. The course offered tuition in human psychology and motivation, change management, emotional intelligence, communication and assertiveness, conflict resolution and interpersonal skills and values, integrity and self-responsibility.

33. Lorraine's attendance at the course was approved and partially subsidised by her employer. In a later performance appraisal, Lorraine's employer made an assessment that the course attendance had directly contributed to an improvement in Lorraine's skills.

34. Lorraine can claim a deduction for the expense she outlaid to attend the personal development course. The course assisted her to maintain or improve some of the skills she required in her employment and improved her performance of her current duties.

35. In addition, Lorraine's employer identified Lorraine's skills gap and encouraged her participation in the course by agreeing to subsidise the cost of attendance. Lorraine cannot claim a deduction for the amount subsidised by her employer.

Example 3 – driving course fee deductible

36. Tex, an apprentice mechanic, road tests vehicles before and after repairs on his employer's premises. Road testing is an essential part of Tex's normal duties. Tex would like to start road testing heavy vehicles so he attends a heavy vehicle driver training course at his own cost and obtains a heavy vehicle licence. The course has enabled Tex to perform his duties with a higher level of skill and may also give Tex increased opportunity for pay rises and promotion.

37. Tex can claim a deduction for the cost of attending the heavy vehicle course as it will result in improved efficiency in performing Tex's existing duties. There is a clear relationship between the cost of the course and Tex's income-earning activity.

Example 4 – stress management course not deductible

38. Brianna, a company director, was having difficulty coping with work due to stress brought about by difficulties with her family situation. She decided to attend a 4-week course in stress management to help her deal with the situation. Brianna attended the course after hours and paid for it herself.

39. The cost of the course is not allowable as a deduction because the course was not designed to maintain or increase the skills or specific knowledge required in her current position. The expenses relate to a private matter so they are also private in nature.

Example 5 – overseas trip not deductible

40. Kerr, a senior lecturer in history, took an overseas tour of China with his wife to obtain up-to-date information in his field of academic interest. They travelled over the Christmas break where they both had recreation leave available. Kerr considered this would increase his prospects for advancement and avert the possibility of retrenchment. Kerr observed and took note of anything he considered to be of historical interest. Kerr's duties did not require him to engage in research, however he incorporated some of the 600 photos he took and some of the learnings from the tour into courses he teaches.

41. The overseas trip is not deductible as it is essentially of a private and recreational nature. The trip is relevant in some ways to the field of activity carried out by Kerr but this is incidental to the overall private and recreational nature of the trip. The overseas trip is not incurred to maintain or improve his skills or knowledge required to carry out his current duties.

Principle 2: Leads to, or is likely to lead to, an increase in your income

42. Where the self-education objectively leads to, or is likely to lead to, an increase in your income from your current income-earning activities, the self-education expenses are deductible.

43. Examination is required to determine what it is that is productive of your assessable income^[33] and whether the self-education leads to, or is likely to lead to, an increase in your income from your current income-earning activities. This is a question of fact to be determined by all the facts and circumstances of your particular case.

44. The following factors have been identified by courts and tribunals as relevant when considering whether the self-education leads to, or is likely to lead to, an increase in your income from your current income-earning activities:

•

the increase in income from your current income-earning activities is clearly and proximately linked with the self-education^[34]

•

there is a real opportunity for your promotion resulting from the self-education^[35]

•

the self-education leads to or is likely to lead to your promotion to a higher pay grade in your current income-earning activities^[36]

•

the self-education leads to or is likely to lead to a bonus or move to a higher pay grade on completion of your self-education, where you remain in your current role doing the same or very similar activities ^[37]

•

the self-education is something that leads to or is likely to lead a promotion to a position which is not materially different from your current position^[38]

•

so far as overall motive or purpose is material in your circumstances, your advancement of employment grade and salary, must form a real and substantial element in the combination of your motives for undertaking the self-education.^[39]

45. No one factor on its own will necessarily determine whether the self-education leads to or is likely to lead to, an increase in your income from your current income-earning activities.

Example 6 – apprenticeship expenses self-education

46. Callum is an apprentice landscaper doing on-the-job training at a landscaping company specialising in new residential gardens whilst attending TAFE one day a week for the formal component of the apprenticeship. Once he receives his qualification his employer will pay him a higher amount based on the industry award rate.

47. Callum can claim a deduction for expenses he incurs to undertake his TAFE course as it is incurred in gaining or producing his income. His expenses include books and transport costs to attend TAFE once a week.

48. Callum cannot claim a deduction for travelling from home to his on-the-job training as it is his regular place of work and this is a private and domestic expense.^[40]

Example 7 – self-education deductible when it leads to a guaranteed promotion

49. Kieran, a computer salesman and assistant manager, takes 6 months leave without pay to undertake a business administration course. He and his employer have both agreed that, upon successful completion of the course, he will be promoted to the manager position with his current employer in the same sales area that he is currently in.

50. Kieran is allowed a deduction for the costs of the course because it will lead to an increase in income from his current employment. Although Kieran has taken leave without pay to undertake the course, he remains employed and upon successful completion of the course he will be promoted by his current employer.

Example 8 – self-education not deductible when it leads to increase in income but position is materially different

51. Seema is employed by an information technology company as a systems architect and she is currently completing a course that will allow her to work in human resources. As Seema is a valued employee, her employer promises her a job in the human resources department on completion of the course. The position in human resources will result in an increase in pay for Seema.

52. Even though the course that Seema is undertaking will result in increased income from her current employer, the increased income is not from her current income-earning activities. The duties of the position in human resources are materially different from Seema's duties in her position as a systems architect and the course is not specifically relevant to her current income-earning activities. Although the promised position will result in an increase in pay, there isn't a sufficient connection between Seema's current income-earning activities and the course she is undertaking. Therefore, Seema cannot claim a deduction for the costs of the course.

Exclusion 1: New employment or new income-earning activity

53. You cannot deduct self-education expenses if the education is undertaken or designed to enable you:

(a)

to get employment

(b)

to obtain new employment^[41], or

(c)

to open up a new income-earning activity, whether in business or in your current employment.^[42]

54. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

55. What is considered new employment, or a new income-earning activity is a question of fact to be determined by all the facts and circumstances of your particular case.

56. The following have been identified by courts and tribunals as circumstances in which self-education expenses are incurred at a point too soon:

•

the self-education is undertaken with an intention to obtain new employment based on evidence of arrangements (such as employment discussions) with a prospective employer^[43]

•

the self-education is designed to enable you to open up a new income-earning activity, whether in business or in your current employment^[44]

•

the self-education is towards an initial qualification which would not increase your ability to perform your current income earning activities.^[45]

Example 9 – self-education at a point too soon, not deductible

57. After finishing her final year of school, Sarah enrols in a full-time fashion photography course at a technical college. She does not receive any government assistance, but does some casual sales work on weekends at a high-end fashion store.

58. Sarah cannot claim the costs associated with the course because the skills and knowledge required for her casual work are not improved by the photography course. Her study costs were incurred at a point too soon to be regarded as incurred in gaining or producing income from her future employment in the fashion photography industry.

Example 10 – self-education to get employment not deductible

59. Stuart wants to be the manager of a hotel. He enrols in a hotel management course, one semester of which involves an industry placement to gain work experience. Stuart is placed with a major hotel where he gains experience in all facets of hotel management, including catering, housekeeping and bar work. He claims a deduction for the cost of the course against income earned during the placement.

60. The cost of the course is not deductible because the study is part of his initial qualification, designed to get Stuart new employment as a hotel manager, and not derive income from any current income-earning activities. It is incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Example 11 – self-education to get new employment not deductible

61. Shannon, who is undertaking a 4-year university degree in mining engineering, takes a job as a casual employee with a mining company during the end of year holiday period after her second year of study. It is the company's policy to take only students who are pursuing relevant studies.

62. Shannon is not entitled to a deduction for the self-education expenses relating to the course because the study is designed to get future employment in the field. It is incurred at a point too soon.

Example 12 – self-education to get new income-earning activity not deductible

63. Joseph is currently employed as a personal care and nursing assistant at an aged care home. Joseph's duties include assisting patients with their personal care, mobility and communication needs, providing daily care to patients under the guidance of a registered nurse and observing and reporting any changes in condition or complaints about care to a registered nurse. He would like to become a registered nurse and undertakes a Bachelor of Nursing course while he is working as a personal care and nursing assistant.

64. As the study is Joseph's initial qualification designed to enable him to enter a new income-earning activity as a registered nurse, self-education expenses in relation to the course are not deductible because they are not related to his current income-earning activities as a care provider.

Example 13 – self-education to get new income-earning activity not deductible

65. Desiree is a general medical practitioner in partnership with 2 other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist.

66. The expenses related to the study are not deductible as the study is designed to open up a new income-earning activity as a specialist dermatologist.

Exclusion 2: Not currently undertaking income-earning activities to derive assessable income

67. To be deductible, the expenses must be relevant to your income-earning activities at the time you incur the expense. A deduction is not available if, at the time you incur the expense, you are not undertaking income-earning activities to derive assessable income, either by employment, carrying on a business or by other means.^[46]

68. If you cease your income-earning activities part-way through completing your deductible self-education, only the expenses incurred while you were undertaking your income-earning activities are deductible. This is because the connection with the self-education is lost once you cease your income-earning activities.^[47] For example, if you are made redundant and the self-education is paid in instalments or per subject, only those incurred at the time you were employed are deductible – you cannot claim a deduction for the entire course even where you commenced it prior to being unemployed.^[48]

Example 14 – fees for education not deductible after being made redundant

69. Jimmy is employed at a bottle shop where he is an assistant manager. To improve his skills and knowledge in the management aspect of his role, Jimmy applies and is accepted to do an MBA at the local university. Jimmy's manager supports the study and there is a sufficient connection to his current employment. Jimmy pays the fees for the first 4 subjects but then is made redundant. He continues with the MBA and pays and undertakes the remaining 8 subjects in the MBA after being made redundant.

70. Jimmy can claim a deduction for the expenses he incurs to do the first 4 subjects of the MBA as these were incurred when he was employed in a management role at the bottle shop and had a sufficient connection with his employment at the time. Jimmy cannot claim any of the MBA expenses he incurs after becoming redundant as the connection with his income-earning activities has ceased.

71. If Jimmy commences new employment while he is still finishing the MBA, he may be entitled to deduct the expenses he incurs to complete the MBA if there is a sufficient connection between the MBA subjects and his new income-earning activities. That is, the expense must be incurred in the course of gaining or producing Jimmy's new employment income.

Specifically not deductible

72. You cannot claim a deduction for expenses incurred to get government assistance that are rebatable benefits.^[49] This assistance includes Youth Allowance, Austudy and Abstudy payments.^[50]

Example 15 – self-education expenses not deductible for Abstudy recipient

73. Cathy starts a full-time Bachelor of Medicine course. Cathy applies for and receives Abstudy payments to support herself while studying. The Abstudy payments are Cathy's only source of income.

74. Abstudy is a taxable government assistance program and is eligible for the beneficiary tax offset.

75. Cathy cannot claim a deduction for her self-education expenses to undertake the Bachelor of Medicine because the Abstudy payments are her sole income and Abstudy is a rebatable benefit.

Apportionment

76. The use of the phrase 'to the extent' in section 8-1 means that there are circumstances where expenses may be deductible only in part if incurred in gaining or producing assessable income as well as for some other use, object or purpose.^[51] In these circumstances, it is appropriate to apportion expenses incurred between income-earning and other uses.

77. It is the objective relationship between your expense and your income-earning activities which usually determines whether the expense is 'incurred in gaining or producing assessable income.'^[52] In most cases the reason for the expense will be apparent and it will not be necessary to enquire further.^[53] However, for expenses voluntarily incurred, which self-education expenses often are, your subjective purpose or motive for incurring the expense may be a relevant factor in determining what the expense is for.^[54]

78. For self-education expenses, you apportion as follows^[55]:

(a)

where the self-education expense has distinct and severable parts, where some are for an income-producing purpose and others are for some other purpose, you apportion the expense according to its particular purpose

(b)

where the self-education expense is a single outlay that serves both an income-earning purpose and some other purpose, you apportion on a fair and reasonable basis. What is fair and reasonable depends on your particular facts and circumstances.^[56]

79. Without limiting the application of (a) and (b) of paragraph 78 of this Ruling, where a course, when considered in its entirety, is not deductible under section 8-1 but particular subjects, classes or modules within the course are sufficiently connected to your income-earning activities, you apportion by claiming a deduction only for the expenses relating to those particular subjects, classes or modules that are deductible.^[57]

80. If there is an incidental purpose, you apportion as follows:

(a)

if the purpose of self-education is the gaining or producing of assessable income, the existence of an incidental private purpose does not affect the characterisation of the self-education expense as wholly incurred in gaining assessable income

(b)

if you are on a holiday or attending an event for private purposes and the gaining or producing of assessable income was merely incidental to the private purpose, only those expenses directly attributable to the income-earning purpose are allowable.

Example 16 – incidental private purpose

81. Glenn, a qualified architect, attends an 8-day work-related conference in Dubai on trends in modern architecture. A sight-seeing tour and a game of golf is held on the final afternoon of the conference. As the main purpose of attending the conference is the gaining or producing of assessable income, the total cost of the conference (airfares, accommodation and meals) is deductible.

82. The private pursuits, such as the sight-seeing tour and the game of golf, are purely incidental to the main purpose and do not affect the characterisation of the conference expenses as wholly incurred in gaining assessable income.

Example 17 – course when on a holiday, private purpose not incidental

83. Jenny, a doctor, was holidaying in Cairns when she became aware of a work-related seminar on the current treatment of cancer patients. The cost of the half-day seminar was $200.

84. Jenny is able to claim a deduction for the cost of the seminar because it is directly attributable to an income-earning purpose. However, no part of her airfare to Cairns or her holiday accommodation is an allowable deduction.

Example 18 – course and holiday

85. Francesco, a paediatrician, has 2 equal purposes when he decides to attend a 5-day international conference on paediatrics in Singapore, to be followed by a 7-day holiday in Thailand. The conference package is $3,500 ($1,500 return airfare, $500 for the cost of the conference and $1,500 for accommodation and meals at the conference venue). Francesco paid another $3,000 for accommodation, meals and car hire for the 7-day holiday in Thailand.

86. Francesco is allowed a deduction of $2,000 for the conference cost and the accommodation and meals expenses at the conference. Only half of the return airfare ($750) is allowed, as the expense was incurred for 2 equal purposes, one income-earning and the other private. The other expenditure of $3,000 relating to the holiday in Thailand is private in nature and not deductible.

Example 19 – individual subjects deductible even where whole of course not deductible

87. James is an employee civil engineer. His duties include designing water and sewerage systems, determining the materials to be used for the systems, carrying out environmental impact studies and project management of the projects he works on. James decides to enrol in a Master of Business Administration (MBA) at a university to broaden his career opportunities, including possibly commencing his own firm in the future. The cost of each subject is identifiable from documentation he receives from the University.

88. The MBA course does not have a sufficient connection with James' current employment activities as a civil engineer, so James is not entitled to a deduction for the course fees. However, if James studies a subject on project management as part of his MBA qualification, that particular subject would have a sufficient connection to his current income-earning activities of managing projects. Therefore, James would be entitled to claim the cost of the project management subject as a deduction.

Example 20 – personal development course partially deductible

89. Brian is a senior manager and is in a leadership role in his employer's organisation. Brian's duties include the provision of policy advice on various topics in his field of expertise through the preparation of reports and the giving of presentations. Brian enrols in and completes a personal development course. The course is made up of 20 course modules, each with equal value as credit towards completion of the course and the fee for each module is the same. The course concentrates on personal self-development and is not, as a whole, directly related to his current role; however, there are 3 modules on counselling and interviewing techniques, group facilitation and presentation skills, and written communication skills that directly relate to Brian's income-earning activities.

90. Brian can claim a deduction for the 3 modules that directly relate to his income-earning activities. The remaining modules don't improve the knowledge or specific skills required for Brian's current income-earning activities, so Brian cannot claim a deduction for these (as they are a private expense).

Types of self-education expenses

91. The following discusses the types of expenditure that can be deductible as a self-education expense, as well as those that cannot.

Course fees

92. Self-education expenses incurred to attend a work-related conference, seminar or a place of education, subject to paragraphs 93 to 96 of this Ruling, are deductible. This includes fees such as student union fees, student services and amenities fees charged by the place of education. These are incurred in undertaking the study and are not private or domestic in nature.

93. Course fees to attend a university or approved higher education provider are deductible only where you are enrolled in a full fee-paying place (where the government does not pay any part of your fees).

94. You cannot claim a deduction for course fees in respect of a Commonwealth-supported place (CSP). A CSP is a type of enrolment where the total cost of your study is split into 2 parts:

•

Subsidised amount – the Australian Government pays a subsidy directly to your education provider. This is not a loan and you do not pay it back. You cannot claim a deduction for the subsidised amount.

•

Student contribution amount^[58] – you pay the amount remaining, being the student contribution amount which you must pay by the census date either upfront or using a HECS-HELP loan, if you are eligible. HECS-HELP loans are repaid through the tax system once your income is above a certain threshold. You cannot claim a deduction for the student contribution amount you pay (either upfront or by way of a HECS-HELP loan).^[59]

95. If you use borrowed money to pay for course fees, this will not affect the deductibility of those fees. For example, a full fee-paying student using a FEE-HELP loan or a personal loan can claim a deduction for their course fees where they are deductible .

96. However, you cannot claim a deduction for repaying the principal amount borrowed, whether you are a full fee-paying student or enrolled in a CSP. This includes^[60]:

•

Higher Education Loan Program (HELP) debt^[61]

•

VET Student Loan^[62]

•

Student Start-up Loans^[63]

•

Trade Support Loans^[64]

•

Overseas debtors repayment levy^[65]

•

Student Financial Supplement Scheme (SFSS).^[66]

Example 21 – course fees deductible

97. Jaison is enrolled in a full fee-paying place in a course of study at an Australian university. The course is relevant to his current field of employment and will improve his existing skills and knowledge. Jaison received a loan under the terms of FEE-HELP to pay his tuition fees.

98. Jaison can claim a deduction for the tuition fees as the study is directly related to his income-earning activities and is likely to lead to an increase in income from those activities. Obtaining a FEE-HELP loan for all of part of the tuition fees does not preclude him from obtaining a deduction, as he is a full fee-paying student and his enrolment is not a CSP.^[67]

99. Jaison cannot claim a deduction for payments to reduce his FEE-HELP debt (either as part of his income tax assessment or as voluntary repayments).^[68]

Example 22 – course fees not deductible

100. Freya is enrolled in a CSP to study Viticulture at an Australian University. The course is relevant to her current field of employment and will improve her existing skills and knowledge. Freya received a loan under the terms of HECS-HELP to pay her student contribution amount.

101. Freya cannot claim a deduction for the course fees as she is a Commonwealth supported student in a CSP.

102. Freya cannot claim a deduction for payments to reduce her HECS-HELP debt (either as part of her income tax assessment or as voluntary repayments).

Example 23 – cancelled enrolment fees deductible

103. Jiesi enrolled to study a subject that had a relevant connection to her income-earning activities as a full fee-paying student. Jiesi paid the course fees but later discontinued the subject before its completion. As she withdrew after the census date, Jiesi was not refunded any of the course fees.

104. Jiesi can claim a deduction for the course fees. The fact that Jiesi withdrew and did not complete the subject does not alter the fact that when the expenditure was incurred, there was a relevant connection between the expense and Jiesi's income-earning activities. The same outcome would occur if Jiesi continued the course and failed.

Interest

105. Interest incurred on borrowed monies where the funds are used to pay for deductible self-education expenses, such as course fees or books, is deductible.

106. It is necessary to have regard to the connection between the interest expense and the income-earning activity in each year in which the interest is claimed. There may be situations where funds borrowed were initially applied to an income-earning purpose, but a change in circumstances means there is no longer a connection between the interest expense and the earning of assessable income. For example, this may occur if you subsequently change your income-earning activity or cease employment altogether.

107. Repayments of the principal amount borrowed are not deductible in any circumstances.

108. Indexation of a loan, such as a HELP loan, is not interest. You cannot claim a deduction for indexation applied to your loan.

Example 24 – interest on loan deductible

109. Christine, an employee solicitor, is undertaking a 3-year Master of Laws course as a full fee-paying student to enable her to carry out her current duties more efficiently. She borrows $10,000, repayable over 3 years, to pay tuition fees. She incurs $1,000 interest in each of the 3 years. Christine continues in her employment during the 3-year period.

110. Christine is allowed a deduction of $1,000 for interest in each year because there is a sufficient connection between the interest expense and her current income-earning activity.

111. If Christine ceases employment after the first year or changes her job to one that is in a different field of employment (such as a photographer), she can only claim the interest deduction in the first year. No deduction is allowed in subsequent years because there is no connection between the interest expense and earning of assessable income in those years.

Example 25 – interest on loan not deductible

112. After completing his secondary education, Alex studied commerce as a full-time student at a private university. He borrowed $30,000 at the commencement of the course, repayable over 5 years, and used the funds to pay course tuition fees. Alex obtained employment with an accounting firm a short time after successfully completing the commerce course.

113. The interest incurred on the loan is not deductible. The funds borrowed were not used for a requisite income-earning purpose, but instead related to a course of study undertaken by Alex before he obtained his current employment. Accordingly, there is not a sufficient connection between the interest expense and Alex's current income-earning activities.

Books, digital subscriptions and stationery

114. Self-education expenses incurred for professional and trade journals, digital subscriptions and stationery, including pens and photocopying are deductible.^[69]

115. Reference books and textbooks that you use for self-education are generally deductible. Where the books or sets of books cost more than $300 or where you intend to use them for a number of years for income-earning purposes, you deduct an amount for decline in value^[70] instead of claiming a deduction in the year of purchase.^[71] See paragraphs 153 to 157 of this Ruling for more on decline in value.

Example 26 – study supplies deductible

116. Eion purchased 2 textbooks for $79 and $99, stationery supplies for $45 and a calculator for $180, all being required to complete his study. The study can be characterised as being incurred in the gaining or producing of his assessable income.

117. Eion can claim a deduction for the cost of the textbooks, stationery supplies and calculator in the year he purchased them (because each item is less than $300 and is not part of a set).

Example 27 – digital subscription partially deductible

118. Beth pays for a monthly subscription to computer-assisted design (CAD) software used for both purposes of completing her graphic design study and also to design birthday invitations for family and friends in her spare time. The study can be characterised as being incurred in the gaining or producing of her assessable income.

119. As Beth uses the software for both study purposes and private purposes, she can only claim a deduction for a portion of the cost of the CAD software subscription. Beth must apportion the cost of the subscription on a fair and reasonable basis, for example, based on the amount of time she uses the software for study as compared with the amount of time she uses it for private purposes which is not deductible.

Airfares

120. Airfares incurred to participate in self-education, provided you are not living at the location of the self-education activity, are deductible. Airfares are part of the cost of undertaking the self-education activities.

Example 28 – airfares deductible

121. Jabari is a civil engineer in Melbourne. Jabari wants to attend a one-week training course in Sydney on new technical specifications being introduced. Jabari's employer agrees that the course is very relevant to Jabari's work and pays for the course, which includes course notes, refreshments and lunch each day. Jabari pays for and is not reimbursed for airfares, accommodation, and meals not supplied as part of attendance at the course.

122. Jabari can claim a deduction for the amount he incurs on airfares.

Accommodation and meals

123. If you are away from home overnight for self-education connected with your income-earning activities, accommodation and meal expenses you incur are deductible.^[72] They are part of the cost of participating in the self-education. Such expenditure is not of a private nature because its occasion is to travel away from home in the course of carrying out your self-education.

124. If you are not away from home overnight in connection with the self-education, a deduction is not allowable for any living expenses you incur such as meals or accommodation. This expenditure is a private or domestic living expense.

125. Similarly, accommodation and meal expenses you incur in connection with self-education will be private and domestic living expenses where you are living at the location of the self-education activity. This will apply regardless of whether the self-education allows you to acquire and improve the skills and knowledge you require to carry out your income-earning activities or leads to, or is likely to lead to, an increase in income from your income-earning activities.

126. The following factors indicate when your accommodation and meal expenses are private and domestic living expenses and are not deductible:

(a)

the length of the overall period you will be away from your usual residence is a relatively long one

(b)

the nature of the accommodation is such that it becomes your usual residence

(c)

you are, or can be, accompanied by family or friends or visited by family or friends.

127. No single factor is decisive and the weight given to each of the factors will vary depending on your individual circumstances.^[73]

Example 29 – accommodation and meals deductible

128. Yan lives in regional North Queensland and is completing a course part-time online which is offered by a university in New South Wales. The course allows Yan to improve the skills and knowledge he requires to carry out his current income-earning activities.

129. Although the course is online, Yan is required to attend the university in person at the end of each semester to undertake his exams. When he is required to attend in person, Yan incurs expenditure on hotel accommodation near the university and meals during the exam period.

130. Yan is not living at the location of the self-education activity because he ordinarily lives in North Queensland. To complete the exams, he travels away from home for a short period of time, stays in short-term accommodation, then returns to his home in North Queensland. The purpose of Yan's travel away from his home is to attend the place of education. Yan's accommodation and meal expenses are deductible when he undertakes this travel.

Example 30 – meals and incidentals not deductible

131. Amber is required to travel from her home in Melbourne to attend a work-related conference in Sydney. Amber flies to Sydney in the morning, then returns to Melbourne on the same day when the conference concludes – there is no overnight stay away from home.

132. Amber cannot claim a deduction for meals and incidental expenses she incurs while attending the conference in Sydney. These are private or domestic expenses. Amber can claim the cost of the flights to and from Sydney as well as the course fee (but only to the extent that Amber is not reimbursed by her employer for these expenses).

Example 31 – accommodation expenses deductible

133. Elizabeth ordinarily lives with her parents in a country town outside Brisbane. She takes 3 months leave from her job to undertake an education course at a training college in Brisbane. When she completes the course, her employer will increase her pay because undertaking the course has improved the skills and knowledge Elizabeth requires to carry out her income-earning activities. She enters an agreement to rent a room in a unit in Brisbane for 3 months with the 2 other students who rent it on a long-term basis. Elizabeth returns to her parental home every weekend and during holiday periods.

134. The relatively short period of her stay in Brisbane, the fact that she hasn't entered into a long-term lease and the frequency of her return visits to her parental home indicate that Elizabeth has not established a new home in Brisbane. Elizabeth can claim the cost of her accommodation to attend the education course as a deduction.

Example 32 – accommodation and meal expenses not deductible

135. John decides to undertake a 2-year course of study at a university in a city 250 kilometres from the town where he lives. He takes unpaid leave from his job and his employer has agreed to promote him to a higher paid position once he has completed the course and returned to work. John shares a rented house with some other students during this 2-year period and takes a casual job. He occasionally returns his former town on weekends to visit family and friends.

136. John can claim the costs of the self-education but cannot claim a deduction for the accommodation and meal expenses he incurs. The length of time that John resides in the city, the long-term nature of his accommodation and the fact that he has employment in the city indicate his accommodation and meal expenses are private and domestic living expenses.

Example 33 – accommodation deductible

137. Madonna undertakes a 5-month study tour in Europe related to her current income-earning activity. Her husband and family remain at the family home in Melbourne. The study tour involves travel to 4 separate locations in Europe for periods of between 4 and 6 weeks each. At each location, Madonna stays in serviced apartments. There is no private time during the study tour for Madonna to take a break or travel elsewhere.

138. The length of time spent at each location and the overall period she is away, along with the short-term nature of the accommodation indicate that Madonna is travelling away from her home. Madonna can claim a deduction for her accommodation expenses.

Example 34 – accommodation and meals not deductible

139. James, a university lecturer, travels overseas for 12 months to the United States of America (US) where he attends a university. He is accompanied by his wife and the family home in Australia is rented out while he is away. While in the US, he lives with his wife in an apartment leased for the duration of their stay.

140. The facts indicate that James is living in the US.^[74] The lengthy period of his stay, the nature of the accommodation and the fact that his wife accompanied him support this conclusion. The same outcome would apply if James was only in the US for 6 months in this example.

Example 35 – accommodation and meals deductible in part

141. Don travels to London to undertake a 3-week course of study to maintain and improve knowledge relevant to his income-earning activities. He stays in hotel accommodation until the end of the 3-week period when he decides he should extend his stay and complete a more extensive 6-month course of relevant study. Don's employer agrees to grant him extended leave to complete the 6-month course. He rents an apartment and arranges for his family to join him in London.

142. Expenditure on accommodation and meals during the initial 3-week period is deductible as Don is away from home overnight for a short period of time and stays in short-term accommodation. However, Don may be considered to be living in London for the 6-month period he undertakes further study and his family joins him.

Transport costs (motor vehicles and fares)

143. Transport expenses that you incur to get you to and from the place of education are also deductible as incidental costs of self-education. In these circumstances, a place of education includes a library for research.

144. Therefore, you can claim a deduction for expenses that are motor vehicle or other transport expenses for journeys between:

(a)

your home and place of education and return, and

(b)

your place of work and place of education and return.

145. These journeys are incidental costs of self-education because the travel is carried out with the sole pursuit of engaging in self-education activities.

146. However, where the overall travel involves travelling between your home and your regular place of work, but also incorporates travel to a place of education, it is only the travel that involves getting to a place of education that is deductible.^[75]

147. As a result, where your journey matches the following sequence, you can only claim the first leg of each journey when you travel from:

(a)

your home to a place of education and then to your place of work

(b)

your place of work to a place of education and then to your home.

148. The transport expenses incurred in the first legs of each journey (in subparagraphs 147(a) and (b) of this Ruling) to get you to the place of education are costs incurred that are incidental to the self-education (in getting to the place of education).

149. The transport expenses incurred in the second legs of each journey (in subparagraphs 147(a) and (b) of this Ruling) involve getting to work (from home, albeit indirectly) and getting to home (from work, albeit indirectly) and are not deductible. Such expenditure is regarded as of the same nature as the cost to get to your regular place of work^[76], and for the return journey home.^[77] These costs are not incurred in the course of gaining or producing your assessable income as they are a prerequisite to earning your assessable income and are private in nature.^[78]

150. Where you carry out your employment duties at the place of education, the deductibility of the travel as outlined in paragraphs 144 and 147 of this Ruling would be determined by TR 2021/1. For example, where you are working at a university and also studying at the university, generally it will be considered home to work travel and not deductible unless the university is an alternative work location.

Example 36 – certain public transport fares deductible

151. Lyle is employed as an assistant visual merchandiser in a retail store. To improve his skills and apply for a promotion to be a visual merchandiser specialist, Lyle enrols in a Diploma of Visual Merchandising. The course requires Lyle to attend the place of education for 3 hours one day per week. On the day he attends the place of education, Lyle takes the train from his house to the place of education in the morning (trip 1), the bus from the place of education to his place of work after lunch (trip 2), and the bus from his place of work to home at the end of the day (trip 3).

152. Lyle can claim a deduction for the cost of his train fares for the journey from his home to the place of education (trip 1). Lyle cannot claim a deduction for the cost of trips 2 or 3. These are private travel expenses in getting to work (trip 2, indirectly from his home) and in getting home from his work (trip 3).

Decline in value (depreciation)

153. You can deduct an amount for the decline in value of a depreciating asset that you held during an income year and used, or had installed ready for use, for a taxable purpose.^[79]

154. A taxable purpose includes the purpose of producing assessable income. This includes self-education expenses where you use, or have installed ready for use, a depreciating asset that enables you to maintain or improve skills or knowledge or is likely to lead to an increase in income from your current income-earning activity. For example, you can deduct an amount for the decline in value of assets such as technical instruments and equipment, computers, calculators, professional libraries, filing cabinets and desks if the self-education satisfies the principles outlined in paragraph 22 of this Ruling.

155. An asset starts to decline in value when you first use or install it for any use, including a private purpose.

156. You must reduce your deduction by the extent to which you use the asset for other than a taxable purpose^[80] or if you held it for only part of an income year. For example, if you use the asset 30% for private purposes and 70% for taxable purposes in an income year you reduce your deduction by 30%.

157. The deduction you can claim for the decline in value of a depreciating asset used for self-education will be determined by:

(a)

the cost of the asset

(b)

the effective life of the asset^[81]

(c)

the method you use to calculate the decline in value.^[82]

Date of effect

158. When the final Ruling is issued, it is proposed to apply both before and after its date of issue. However, the Ruling will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 75 to 76 of Taxation Ruling TR 2006/10 Public Rulings).

Commissioner of Taxation
27 September 2023

Appendix – Your comments

159. You are invited to comment on this draft Ruling. Please forward your comments to the contact officer by the due date.

160. A compendium of comments is prepared when finalising this Ruling, and an edited version (names and identifying information removed) is published to the Legal database on ato.gov.au

161. Please advise if you do not want your comments included in the edited version of the compendium.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

References

ATO references:
NO 1-WK0H5MQ

Previous Rulings/Determinations:
TR 92/8W
TR 98/9W

Related Rulings/Determinations:

TR 2006/10
TR 92/15
TR 97/7
TR 2020/1
TR 2021/1
TR 2021/4

Business Line:  IAI

Legislative References:
ITAA 1997 8-1
ITAA 1997 8-1(1)(a)
ITAA 1997 8-1(1)(b)
ITAA 1997 8-1(2)
ITAA 1997 26-19
ITAA 1997 26-20
ITAA 1997 26-20(1)(ca)
ITAA 1997 26-20(1)(cb)
ITAA 1997 26-20(1)(cba)
ITAA 1997 26-20(1)(cc)
ITAA 1997 26-20(1)(cd)
ITAA 1997 26-20(1)(ce)
ITAA 1997 26-20(1)(d)
ITAA 1997 Div 28
ITAA 1997 Div 40
ITAA 1997 40-25
ITAA 1997 40-25(2)
ITAA 1997 40-80(2)
ITAA 1997 Div 900
ITAA 1997 900-30(1)
ITAA 1936 51(1)
ITAA 1936 51AH
ITAA 1936 82A
ITAA 1936 160AAA(1)
ITAA 1936 262A
HESA 2003 93-5
HESA 2003 Chapter 3
HESA 2003 Chapter 4

Cases Relied on:
Assefa and Commissioner of Taxation
[2009] AATA 2

Case H18
76 ATC 130
(1976) 20 CTBR (NS) 709
Case No NT85/4381 and Commissioner of Taxation
[1987] AATA 175
87 ATC 657
Case No NT85/4912 and Commissioner of Taxation
[1987] AATA 155
87 ATC 616
Case No NT91/37 and Commissioner of Taxation
[1991] AATA 290
22 ATR 3549
92 ATC 101
TT86/122; TT 86/286 and Commissioner of Taxation
[1987] AATA 72
87 ATC 354
Case Z42 (Case 8419 (1992))
92 ATC 381
24 ATR 1183
Commissioner of Taxation v Day
[2008] HCA 53
(2008) 236 CLR 163
83 ALJR 68
250 ALR 388
2008 ATC 30-064
70 ATR 14
Commissioner of Taxation v Faichney
[1972] HCA 67
(1942) 129 CLR 38
3 ATR 435
72 ATC 4245
47 ALJR 35
Commissioner of Taxation v Finn
[1961] HCA 61
(1961) 106 CLR 60
35 ALJR 293
12 ATD 348
Commissioner of Taxation (Cth) Hatchett
[1971] HCA 47
(1971) 125 CLR 494
2 ATR 557
71 ATC 4184
Federal Commissioner of Taxation v Maddelena
2 ATR 541
71 ATC 4161
Commissioner of Taxation v Payne
[2001] HCA 3
75 ALJR 442
177 ALR 270
Commissioner of Taxation v Roberts, M.I.
[1992] FCA 896
39 FCR 118
92 ATC 4787
24 ATR 479
Federal Commissioner of Taxation v Anstis
[2010] HCA 40
(2010) 241 CLR 443
76 ATR 735
2010 ATC 20-221
Commissioner of Taxation v Cooper, R.J.
[1991] FCA 190
99 ALR 703
29 FCR 177
91 ATC 4396
21 ATR 1616
Federal Commissioner of Taxation v Lacelles-Smith
78 ATC 4162
8 ATR 524
Federal Commissioner of Taxation v Smith
(1978) 36 FLR 95
(1978) ALR 493
78 ATC 4157
8 ATR 518
Fletcher v Commissioner of Taxation
[1991] HCA 42
(1991) 173 CLR 1
66 ALJR 11
22 ATR 613
91 ATC 4950
Kidston Goldmines Ltd v Commissioner of Taxation
[1991] FCA 351
30 FCR 77
91 ATC 4538
22 ATR 168
Lunney v Commissioner of Taxation;
[1958] HCA 5
(1958) 100 CLR 478
(1958) 11 ATD 404
(1958) 32 ALJR 139
Magna Alloys & Research Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia
[1980] FCA 180
(1980) 49 FLR 183
80 ATC 4542
11 ATR 276
Naglost and Commissioner of Taxation
[2001] AATA 1051
49 ATR 1028
2002 ATC 2008
Ronpibon Tin NL v Commissioner of Taxation (Cth)
[1949] HCA 15
78 CLR 47
(1949) 23 ALJ 139
(1949) 8 ATD 431
Studdert v Federal Commissioner of Taxation
91 ATC 2007
22 ATR 3042
The Roads and Traffic Authority of NSW v Commissioner of Taxation
[1993] FCA 445
(1993) 116 ALR 482
(1993) 43 FCR 223
93 ATC 4508
26 ATR 76
Thomas v Federal Commissioner of Taxation
[2015] AATA 687
2015 ATC 10-404
100 ATR 235
Ting and Commissioner of Taxation
[2015] AATA 166
2015 ATC 10-386
101 ATR 158

Other References:
Guide to Depreciating Assets 2023
TR 2022/1