Deductibility of self-education expenses
The ATO recently released a final taxation ruling (TR 2024/3) which consolidates and updates its previous rulings (now withdrawn) on the deductibility of self-education expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
The ruling does not address the repeal of s 82A of the ITAA 1997 (with effect from 1 July 2022) which limited the amount of expenses otherwise deductible to the excess over $250.
With the release of the consolidated ruling, now is the perfect time to recap the current rules for deductibility of self-education expenses.
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What types of self-education expenses are deductible?
Under the new ruling, self-education expenses include courses at an education institution (whether leading to a formal qualification or not), courses provided by a professional or industry organisation, attendance at work-related conference or seminars, self-paced learning and study tours (whether within Australia or overseas).
According to the ATO, self-education expenses are deductible if one or both of the following apply and none of the exclusions (see below) apply:
- the individual’s income-earning activities are based on the exercise of a skill, or some specific knowledge and self-education enables the individual to maintain or improve that skill or knowledge – this is a question of fact to be determined by assessing all the facts and circumstances of each individual case. For example, if the self-education is too general in terms of current income-earning activities, the necessary connection between the self-education expense and income earning activity is unlikely to exist.
- the self-education objectively leads to, or is likely to lead to, an increase in the individual’s income from current income-earning activities in the future – the factors that the courts and tribunal have determined as relevant include real opportunities of promotion, education that is likely to lead to a higher pay grade, bonus, or increase in income.
Exclusions
Exclusions to the deductibility of self-education expenses include:
- new employment or new income-earning activity – an individual cannot deduct self-education expenses if the education is undertaken or designed to obtain employment, obtain new employment, or open up a new income-earning activity (whether in a business or in current employment).
- not currently undertaking income-earning activities to derive assessable income – a deduction will not be available if an individual was not undertaking income-earning activities to derive assessable income (either by employment, carrying on a business or by other means) at the time the self-education expense is incurred.
In cases where an individual ceases their income-earning activities part-way through completing deductible self-education, only the expenses incurred while undertaking income-earning activities will be deductible (i.e. a deduction cannot be claimed for the entire course).
A deduction cannot be claimed for self-education expenses against any government assistance received in the form of rebatable benefits (e.g. Youth Allowance, Austudy and ABSTUDY).
Apportionment of self-education expenses
For self-education expenses that are only partly deductible, apportionment is required.
According to the ATO, where the self-education expense has distinct and severable parts and some are for an income-producing purpose and others are for some other purpose, the individual must apportion the expense according to its particular purpose.
However, where the self-education expense is a single outlay that serves both income-earning and some other purpose, the apportionment should be made on a fair and reasonable basis which will depend on the individual facts and circumstances.
Getting it right
With the return of international conferences for various occupations, the deductibility of expenses such as accommodation, meals and course fees related to self-education is once again coming into play at tax time.
In order to maximise your deduction where you have undertaken self-education during the financial year, it is best to consult a tax professional as individual circumstances differ and what is deductible for one taxpayer may not be for another.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.