A new draft ruling has been released by the Australian Taxation Office on self-education expenses. If you study, which is related to your work, you are allowed to claim your costs of that study as a tax deduction – thinking that your employer has not already caught your expenses. There is also no restriction to the deduction value you can claim. While this sounds encouraging there are still problems to consider before you claim your accommodation, Harvard graduate degree, and flights as a self-education expense.
Clients need to understand what expenses cannot be claimed. If you are undergoing self-education to obtain a new job or something unrelated to your current income, such expenses are not deductible. For instance, a nurse’s aide attending university to become a registered nurse cannot claim the expenses associated with the degree, as it is not sufficiently connected to their current role. The ATO has released a new draft ruling on self-education expenses, reinforcing what expenses they will and will not accept, without introducing new rules.
Personal Development Courses
Although not always the case, claiming deductions for self-development or personal development courses can be challenging because the knowledge or skills gained may be too general. For instance, let’s say a manager is facing difficulty coping with work due to a stressful family situation and decides to enrol in a 4-week stress management course. However, this course cannot be claimed as a deduction because it was not specifically designed to maintain or increase the skills or knowledge required for the manager’s current position.
When Your Employment Ends Part the Way Through Your Course
Moreover, if your employment or income-earning activity ends while you are partway through a course, you can only claim expenses up to the point you stopped working. Anything beyond that is not deductible unless you obtain a new role and the course’s relevance remains intact.
Overseas Trips with Some Work Thrown in
If you plan on taking an overseas study tour, it’s important to know that deductions are only allowed in certain circumstances. To be eligible, you must demonstrate that the primary purpose of your trip is related to your job. Factors that can help prove this include the amount of time spent on work-related activities during the trip, the purpose of the trip not being purely for recreation, and your employer’s support or request for the trip. The Australian Taxation Office is stringent in enforcing these rules.
For example, let’s say a senior history lecturer at a university takes a trip to China with his spouse during the Christmas break to update his knowledge in his field of academia. Although he used some of the 600 photos he took and the knowledge gained from the tour in his classes, the trip cannot be deducted as it is primarily for private and recreational purposes, with only incidental relevance to his job.
Overseas Conference with Some Recreation Thrown in
When the aim of a trip is directly related to your work, the ATO is more accommodating. For example, if the conference organises an afternoon tour, that is incidental to the conference itself, you are eligible to claim the full conference expenses.
If you extend your stay beyond the dates of the conference and this is not considered incidental, then you allot the expenses and claim the part related to the conference. For example, you attend a conference for 4 days, then spend another 4 days on holiday. Supposing the conference is related to your work directly, you can claim your expenses related to your conference and half of your airfare.
Not Fully Deductible? Part of the Course might Qualify
If a specific course is not fully deductible, a deduction may still be available for some of the course fees where there are specific modules or subjects in that particular course that are related to your employment. In these cases, the fees of the course would be apportioned. For example, a civil engineer who is completing her MBA. While the MBA is not related to engineering, her expenses related to the project management module she took as part of the course could qualify.
Interaction with Government Assistance
You are not allowed to claim the course fees if your course is a Commonwealth-supported place. However, the deductibility of course fees is not affected only because you borrow money to pay for those fees, for instance, a full-fee paying student using a government FEE-HELP loan to pay for course fees.
A Warning on Large Claims
There is no restriction on the amount you can claim as a self-education expense but the ATO intends to target large self-education expenses. For anyone who has done postgraduate, you know that these expenses can be increased very quickly, especially when you add in any other expenses such as travel or books. Make sure that there is a transparent connection between your current job and the self-education expenses before you claim them. Airfares spent in self-education, offered if you are not living at the location of the self-education activity, are deductible.
Now, you have an idea of what you can claim and what can’t on self-education. For more details, you can ask Reliable Melbourne Accountants.