Lisa Samarkovski, LLB(Hons) BCom BA FTIA Lecturer, Taxation Law, Griffith Business School, Griffith University. Lisa has just entered her second year as a lecturer at Griffith University teaching taxation law to students in the Bachelor of Commerce, Master of Commerce and Bachelor of Laws programs, which she thoroughly enjoys! Previously Lisa was at the Australian Taxation Office and worked in a number of business lines including GST, Small Business, and Excise. Self-education expenses For each of the following scenarios, determine the allowable deductions for the 2007/08 income year in accordance with Division 8 of the Income Tax Assessment Act 1997 and section 82A of the Income Tax Assessment Act 1936. Question 1: During the 2007/08 income year, Naomi incurred the following educational expenses while working for a chartered accounting firm as a junior accountant: Question 2: Expenses associated with her third year of an undergraduate course in accounting at the local university. The course directly relates to Naomi s employment and is likely to see her receive a pay rise on its successful completion. The expenses Naomi incurred are: University fees $235 HECS $950 Photocopying study materials $ 35 Textbooks (only useful for the current year) $170 Bus fares from work to uni $ 65 Stationery $ 15 Coffee after classes $115 During the 2007/08 income year, Jose incurred the following educational expenses while working for a chartered accounting firm as a junior accountant: Question 3: Expenses associated with his first year of the Chartered Accountant s Program. The course directly relates to Jose s employment and is likely to see him receive a pay rise on its successful completion. The expenses Jose incurred were: Fees to the Institute of Chartered Accountants (for a module in the Chartered Accountant Program) $650 Photocopying study materials $ 15 Textbooks (only useful for the current year) $110 Stationery $ 10 During the 2007/08 income year, Chris incurred the following educational expenses while working for a chartered accounting firm as a junior accountant: Taxation Institute of Australia Page 1 of 6
Question 4: Expenses associated with his first year of a part-time dentistry degree at the local university. The dentistry course is likely to lead to a greater salary for Chris on completion, but as a dentist rather than an accountant. The expenses Chris incurred were: HECS $2,250 University student fees $ 175 Equipment for practicals $ 515 Photocopying study materials $ 85 Textbooks (useful for the remaining 3½ years of study) $ 710 Stationery $ 25 Parking on campus while attending lectures $ 78 Vaccinations for infectious diseases $ 155 During the 2007/08 income year, Xiao incurred the following educational expenses while working for a chartered accounting firm as a junior accountant: Solutions Expenses associated with her second year of an postgraduate course in accounting at the local university. The course directly relates to Xiao s employment and is likely to see her receive a pay rise on its successful completion. The expenses Xiao incurred are: University student fees $ 165 Photocopying study materials $ 65 Textbooks (only useful for the current year) $ 170 Bus fares from work to uni $ 45 Stationery $ 35 Child care while attending classes $ 120 Study desk (purchased 1 August 2007, 60% study use) $ 450 In all cases, you will need to show that the self education expenses were incurred in gaining or producing the taxpayer s assessable income. That is, the expenditure must pass the first limb of section 8-1 of the ITAA 1997. Specifically, self-education expenses will be deductible where the expense constitutes an allowable deduction and there is a direct connection between the self-education activity and the taxpayer s work activities at the time the expense was incurred which enabled them to: either maintain or improve the skill(s) or specific knowledge upon which their income earning activities are based (see paragraph 13 of TR 98/9); or they can show that the study leads to, or is likely to lead to increased income from their current work activities (see paragraph 14 of TR 98/9). However, in accordance with paragraph 15 of TR 98/9, no deduction will be allowed for self-education expenses if the study is undertaken in order to: obtain employment; obtain new or different employment; or open up a new income earning activity as the expenses cannot be considered to have been incurred in gaining or producing assessable income. Furthermore self education expenses are not deductible against Commonwealth assistance schemes, such as AUSTUDY. Taxation Institute of Australia Page 2 of 6
Some self education expenses are not deductible under section 8-1 of the ITAA 1997, because of one of the negative limbs. For example, HECS-HELP fees fall under the fourth negative limb of section 8-1 as they are specifically denied deductibility under subsection 26-20(1). After determining whether the self-education expenses are deductible under section 8-1, it is then necessary to check whether they fall under the definition of expenses of self-education in section 82A of the ITAA 1936, as this section will operate to exclude the first $250 of self-education expenses that are otherwise allowable under section 8-1. For section 82A to apply, the study must be undertaken at a prescribed place of education which means: a course of education provided by a school, college, university or other place of education, and undertaken by the taxpayer for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade in the course of any employment. Note that section 82A will only apply to deductions that are allowable under section 8-1. Therefore deductions for repairs (deductible under section 25-10) and decline in value (deductible under section 40-25) do not need to be reduced. All self-education expenses should be substantiated and apportioned to reflect the self-education use. The Tax Office makes it easier to understand how section 82A will apply by grouping the types of self-education expenses allowable into different categories: Category A B C Description General expenses that are allowable as a deduction, including: textbooks where there is no ongoing value (if there they can be used after the course in the taxpayer s work, a deduction for the decline in value under Category B should be claimed instead) stationery including folders, paper, pens and photocopying trade, professional, or academic journals used in the course of study technical instruments and equipment (if they have an ongoing use, a deduction for the decline in value under Category B should be claimed instead) fares for travel * student union fees course fees but not HECS-HELP home office running costs incurred while studying computer consumables (printer ink/toner, paper, discs internet usage parking fees where related to travel to a place of education including to a library for study purposes postage directly related to study accommodation and meal expenses where the taxpayer is away overnight in connection with work related self-education activities car expenses * worked out under the logbook or one third of actual expenses method Decline in value on items of equipment used for self-education purposes Repairs to items of equipment used for self-education purposes. Taxation Institute of Australia Page 3 of 6
D E Car expenses * related to your self-education activities which are claimed using the: cents per kilometre method, or 12% of original value method Self-education expenses you have incurred that are not allowable as a deduction, including: non-deductible travel expenses child care costs related to attendance at lectures or other self-education activities capital cost of items acquired in the financial year and used for selfeducation purposes. * Note only the following legs of travel are deductible: Deduction Deduction No No Self-education expenses will be reduced by the operation of section 82A in the following way: If you have: NO category A expenses ONLY category A expenses of more than $250 ONLY category A expenses under $250 Category A expenses, but your category C, D and E expenses total $250 or more Then: You do not have to reduce your claim. Add together any category B, C and D amounts to determine your claim for selfeducation expenses Reduce the category A amount by $250 and claim the excess amount as a selfeducation expense on your tax return. You are not able to claim any selfeducation expenses. You do not have to reduce your claim. Add together any category A, B, C and D amounts to determine what you can claim Taxation Institute of Australia Page 4 of 6
as a self-education expense. Category A expenses but your category C, D and E expenses total less than $250 Subtract the total C, D and E amount from $250 (the amended claim reduction amount). Subtract the amended claim reduction amount from the category A amount (reduced category A amount). Add the total B, C and D amount to the reduced category A amount. Question 1: The necessary connection between Naomi s employment and study exists; therefore she will be able to claim a tax deduction for her self-education expenses. The university where Naomi undertakes her study is a prescribed place of education so section 82A will apply. Naomi will not be allowed a deduction for HECS as it is specifically excluded by both section 82A and subsection 26-20(1). Coffee after classes will not be an allowed deduction because it is private in nature, and therefore excluded by the second negative limb of section 8-1. Naomi is then left with only Category A self-education expenses: University fees $235 Photocopying study materials $ 35 Textbooks (only useful for the current year) $170 Bus fares from work to uni $ 65 Stationery $ 15 $520 Section 82A reduction ($250) $270 Naomi will be able to claim a deduction of $270 for self-education expenses in the 2007/08 income year. Question 2: The necessary connection between Jose s employment and study exists; therefore he will be able to claim a tax deduction for her self-education expenses. However, Jose is not studying at a prescribed place of education as defined in section 82A therefore he is not required to reduce his self-education expenses deduction by $250. Jose will be able to claim a deduction for the following expenses: Fees to the Institute of Chartered Accountants (for a module in the Chartered Accountant Program) $650 Photocopying study materials $ 15 Textbooks (only useful for the current year) $110 Stationery $ 10 $785 Hence Jose will be able to claim a deduction for $785 in the 2007/08 income year as a work-related expense, rather than a self-education expense. Question 3: Chris is employed as a junior accountant, yet he is studying for a degree in dentistry. Clearly, there is no connection between his study and his current employment. Training and study to become a dentist will not maintain or improve the skill(s) or specific knowledge upon which his income earning activities as an accountant Taxation Institute of Australia Page 5 of 6
are based. Neither could he show that the study leads to, or is likely to lead to increased income from his current work activities as a junior accountant. Therefore he will not be able to claim a tax deduction for any of the expenses that he has incurred in relation to his dentistry degree for the 2007/08 income year. Question 4: The necessary connection between Xiao s employment and study exists; therefore she will be able to claim a tax deduction for her self-education expenses. The university where Xiao undertakes her study is a prescribed place of education so section 82A will apply. Xiao has the following categories of expenses: Category A: University student fees $165 Photocopying study materials $ 65 Textbooks (only useful for the current year) $170 Bus fares from work to uni $ 45 Stationery $ 35 $480 Category B: Decline in value for the desk # $24.78 ($450 x 335 x 2 x 60%) 365 20 # the effective life for a desk is 20 years: TR 2007/3 Have used the diminishing value method in s 40-72 to calculate the decline in value. Category E: Child care while attending classes $ 120 Category A expenses = $480 Category C + Category D + Category E expenses = 0 + 0 + $120 = $120 Therefore Xiao must: Subtract the total C, D and E amount from $250 (the amended claim reduction amount). $250 - $120 = $130 Subtract the amended claim reduction amount from the category A amount (reduced category A amount). $480 - $130 = $350 Add the total B, C and D amount to the reduced category A amount. $24.78 + $0 + $0 + $350 = $374.78 Therefore Xiao will be able to claim a deduction of $374.78 for self-education expenses in the 2007/08 income year. Taxation Institute of Australia Page 6 of 6