Allowable Deductions For Self-Education Expenses: A Case Study

Relevant Legislation

The case has stated the following facts that are described as under:

• Danny is an Australian resident and has an engagement in the company Robin Pty Ltd as a technician.
• He had resigned for undertaking studies at the Charles Strut University and the company had offered him a comeback after the completion of the studies.
• Danny has incurred substantial costs on a participation in the program i.e. the student exchange program.
• He was in a trip and was working as a tutor in university getting paid a sum of $4000.  

Keeping in mind the above facts, the main issue is the determination about whether the incurred expenses incurred will be allowed for deduction purpose.  

The laws for the application consist of the following:

• FCT v Hatchett 71 ATC 4184
• Taxation Ruling 98/9;
• Section 8-1 of the Income tax Assessment Act 1997;
• Section 82A of the Income Tax Assessment Act 1936;
• Anstis v FCT 2009 ATC

There are a variety of list of deduction stated under the section 995-1 contained in the Income Tax Assessment Act 1936. The Income tax Acts and case laws are the governing authorities for the deductions or allowing of the proceeds and the expenses (Baker, 2016). The nature of expenses needs to be considered at the time of deduction. The capital expenses and the revenue expenses must not be allowed under deduction. Furthermore, the expenses incurred towards the earning of the income exempted do not form the part of an allowable deduction.

The expenses incurred towards earning or generating an assessable income forms part of the allowable deduction. The statement is provided in the Income Tax Assessment Act 1997 under the section 8-1(1). Moreover, the losses incurred towards the provision of the assessable income also forms part of the deduction under the given section of the Act. In case of the tax payers being an entity or business, the incurred expenses for the generation or production of the income proceeds from the transactions or the dealings of a business or entity will be a part of the allowable decision. The section further states that the expenses of the capital, private and the expenses towards the production of the income of assessable nature are not a part of the allowed deductions (Berry & Hay, 2016). In addition, there must be a connection or link between the losses incurred and the income to be assessed. Therefore, the Act appropriately states that the taxpayers can only claim deduction on expenses utilized in the generation of income.

In the case of the Charles Moore V FCT (1956), the taxpayer had claimed deduction for the earnings and proceeds that was a theft from the uninsured store of the gun points. The court of law passed the decision in the favor of the taxpayer as the losses incurred had a connection with the assessable income. Thus, the expenses or losses for the production of an income of assessable nature are considered to be allowed for deduction. In cases where the tax payers incur expenditure towards the future overheads or the budgeted expenses, the same will not form part of an allowable deduction as it is not currently the part of the assessable income. The above analysis and discussions have already thrown light on the allowable deductions.

Apart from the above discussions of the Income Tax Act, the analysis of the deductions of allowable nature is also made after the explanations derived from the Tax Rulings that are discussed below.  

The Taxation Ruling No. 98/9 has a relation with the expenses related to self education. The expenses of the above nature are allowed under rulings and provisions of the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936. The Para 12 of the Income Tax Act states that the expenses of self deduction is allowable as deduction if there is a pertinent or significant relationship between the payers of the income taxes of present year. Further, the Para 13 of the Income Tax Act states that the expenses related to the improvement of the skills and knowledge related to the self education forms part of the deductible expenses.

Analysis of Deductions

As per the Para 14 of the Income Tax Act, it has been stated that in case of the increase in the income at the present level that has a relation with the self education will form part of the allowable deductions. Also, as per the Para 15 of the Income Tax Act, it has been stated that the expenses will not be allowed for deduction in cases where the taxpayer has sustained expenditure on the education expenses that is unprofessional in nature. Thus, the allowable deductions will not include the arguments that the taxpayer will get the deduction for the expenses in relation to the purposes after employment of the taxpayers.

The Para 17 of the Income Tax Act provides that the expenses having an essential feature that has a relation with the produced income will be allowed as deduction under the section 8-1 of the Income Tax Act 1977. There must be mutual exclusiveness in the application of the allowable expenditures and the significant characteristics of the expenses get interpreted and determined after the proper analysis of the circumstances and stated objectives. The analysis means that in case if the expenses have been incurred in the course of the study tour towards the purposes that have a relation with the work, the same will get apportioned as per the incurrence towards the purposes. The proportion will be done for the private and the work related expenses incurred in total at the time of the study tour. There are cases in which the expenses are incurred for private use but also have a link to the production of the assessable income. In such cases where there is a connection between the expenses of private nature and the assessable income produced, the expenses will fall under the category of the allowable deduction as per the Income Tax Act (Gale & Samwick, 2014).

Further, there must be a noting made that the expenses that have been incurred for the private purposes along with a relation to the production of the major activity of earning, the said expenses will not be a part of the allowable deductions category. The Income Tax Act and the Taxation Rulings provides a ruling that provides a stating that a deduction is allowed for the declining value and price of the assets to be depreciated. The above ruling and the other sections of the Income Tax Act constitute that the depreciating assets being held at the taxable year has to be used towards the purposes of taxability. In case of the depreciable assets being used for the self education purpose, the expenses on the assets will form the part of allowable deductions. The amount of the depreciation has to be degraded or reduced to an extent till which the assets under acquisition had been used (Robinson et al. 2015). The above must not have any link or connection with the income under production or already produced.

The Taxation Ruling contains the Para 23 that take into account a list of the allowable expenses under the Income Tax and the same are provided below:

• Airfare expenses that include the educational tours having a relation to the study tour and travelling overseas for the sole purpose of attaining education. The expenses related to the seminars and other conferences towards the attainment of education and thus all the expenses that are requisite towards the participation of the study tour stated above.
• The charges with regard to the stationery, textbooks and journals of professional nature.
• Accommodation and other connected expenses that occur when a individual has a stay in abroad for the study tour and also for being present in the conferences and institutions for work or study.
• The fees related to the whole course for which the student went abroad or the tuition fees towards the attending of education and other conferences. It also includes other expenses related to work or in respect to the union of students.
• There might be borrowings for the improvement of the skills and knowledge of the taxpayers at the time of self education. Thus, the interest expenses having a relation to the above borrowings fall under the allowable deduction category (Snape & De Souza, 2016).   

Connection with Self-Education

The Taxation Ruling contains the Para 23 that take into account a list of the expenses that are not allowable under the Income Tax and the same are provided below:

• The interest expenses related to the debts obtained are deductible and not the amount of debt is deductible.
• If the expenses have been incurred by the taxpayers that has relation with the meals and accommodation for the self education is not included in the allowable deductions.
• If the expenses have been incurred by the taxpayers that has relation with the meals  in connection with the purposes of self education, conferences for work and other seminars;

In a decided case as per the case of Anstis v FCT 2009 ATC, there was a stating that there will not be any deductions allowed towards the incurrence of the expenses for the purposes of travelling between the educational institutions, work place or home. As per the Income Tax Assessment Act, under the section 82A, the maximum allowable deduction is $250 for the expenses of self education (Davis et al. 2015).

In a decided case as per the case of FCT v Hatchett 71 ATC 4184, it was stated that the costs incurred by the school teacher of primary section for obtaining the certificate of the secondary teacher of school forms a part of the allowable deduction. The above case was allowed on the grounds that the deduction has the relation with the enhancement of the professional qualification that will further lead to the augmentation of the total income of the taxpayers.   

In the given case, Danny has an engagement as a technician in the work place and the professional study will further improve and enhance the income of the individual. Based on the above decided case laws and rulings on the FCT v Hatchett 71 ATC 4184, it can be said that the expenses incurred by Danny will form part of the allowable deductions. The airfare is deductible as stated in the list of allowable expenses and the Tax Rulings. Further, the accommodation and meal expenses having relation to the self educational purposes are not an allowable deduction and the same is contained in the paragraphs of the Taxation rulings. Study materials and books brought for the educational purpose is an allowable deduction but the laptop that has been purchased will not be a part of the deductible expenses. With respect to the case Anstis v FCT 2009 ATC, the expenses of the motor vehicles used up for a period of five months will not be considered under the allowable deductions as the same had been used for travelling to the institution for study purposes (Slack, & Bird, 2014).

Table: Statement of Allowable deduction

Source: Created by Author

The above table has reflected and given the analysis that the expenses can form part of allowable deductions based on cases and rulings under the above discussions. Further, as per the Income Tax Assessment Act, under the section 82A, the maximum allowable deduction is $250 for the expenses of self education will be allowed to Danny.

Conclusion

Hence, from the above rulings, policies and discussions it can be concluded that as per the Income Tax Assessment Act, under the section 82A, the maximum allowable deduction is $250 for the expenses of self education will be allowed to Danny.

Reference List

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