The deductibility of self-education expenses
To get ahead of the game and stay there, you need to flex your grey matter as often as possible. Self-education is one way of ensuring you keep up to speed with developments and methods relating to either your business or your field of employment.
To help encourage employers and employees alike to undertake educational programs, there are a number of self-education tax breaks available.
Self-education expenses are deductible provided that a direct connection can be demonstrated between the education being undertaken and how one derives assessable income.
Included in the definition of self-education are courses undertaken at an educational institution (whether leading to a formal qualification or not), attendance at work-related seminars or conferences, self-paced learning and study tours (overseas or within Australia).
However certain self-education expenses may be subject to a limit. Where the expenses would otherwise be deductible under general tax laws, a deductibility limit applies. In this case only amounts greater than $250 can be claimed (or in other words, the first $250 is not deductible).
General conditions for deductibility and non-deductibility
In general terms, it is necessary to satisfy any of the following tests to be entitled to a tax deduction for self-education:
- the expense has a relevant connection to the taxpayer’s current income earning activities (that is, the course must be relevant or incidental to how the taxpayer derives his/her assessable income)
- the self-education program being undertaken enables the taxpayer to maintain or improve the skills or knowledge necessary to carry out his/her income earning activities, or
- the self-education leads to, or is likely to lead to, an increase in the taxpayer’s income from his/her current income earning activities in the future.
- Deductions for self-education expenses are not allowed if the course of study is designed to:
- get employment in a new field of endeavour (for example, a teacher studying law to become a lawyer)
- get employment or obtain a qualification to enable the taxpayer to enter a restricted field of endeavour (for example, obtaining a degree to be able to practice as a surveyor), or
- open up new income earning opportunities in the future (whether in business or in the taxpayer’s current employment) because they are incurred “at a point too soon” to be regarded as being incurred in gaining or producing the assessable income of the individual.
It is possible for courses to have both deductible and non-deductible elements (for example a plumber who runs his own business who undertakes a business management course to enable the plumber to also practice as a qualified business administrator). In that situation, the deductibility of the expenses will be determined by the intention of the taxpayer when the course was undertaken.
If the taxpayer can show that the course is incidental and relevant to his or her existing income earning activities, the cost will generally be deductible. Creation of other opportunities is irrelevant. If the course was undertaken with the specific intention of changing the taxpayer’s income earning activity, such expenses would however not be allowed as a deduction.
Expenses that are tax-deductible
Subject to the general tax law tests for deductibility, these expenses are allowable:
- course or tuition fees (including student union fees)
- textbooks, professional or trade journals, technical instruments and clerical expenses such as word-processing or photocopying
- depreciation on professional libraries, desks, computers and filing cabinets, etc
- fares, accommodation and meals incurred on study tours, work-related seminars or conferences away from the taxpayer’s home
- interest on money borrowed to pay the above expenses or to purchase plant or equipment on which depreciation is allowable, and
- travel costs (including motor vehicle and fares and so on — see below).
Expenses that are not tax-deductible
- education expenses against income received under various Commonwealth educational assistance schemes, such as the Youth Allowance
- meals purchased while on normal travel between home and an educational institution
- travel expenses between home and an educational institution at which the taxpayer works
- contributions made under the Higher Education Support Act 2003 and Student Assistance Act 1973, such as HELP (previously HECS) payment.
TIP: Unless paid or reimbursed by the employer, HELP payments are generally not tax deductible, however if they are paid or reimbursed by an employer they are tax deductible to the employer but FBT is payable.
The cost of travel between the taxpayer’s home and place of work is not allowable. Claims are generally allowed for travel between:
- the taxpayer’s home and an educational institution (including a library for research), and
- the taxpayer’s place of employment and an educational institution (that is, school).
Note that travel expenses (and/or fares) between the taxpayer’s home and an educational institution are not allowable if the taxpayer carries out income-earning activities at the institution. Such expenditure becomes travel expenses between home and work (not self-education expenses) and may or may not be allowable depending on the circumstances (see table below).
Work-related education programs
As a general rule, costs of certain education programs (such as seminars, professional development courses, and tertiary studies while in employment) are deductible provided the requisite connection to the earning of assessable income can be established. However, the costs of certain tertiary studies undertaken before the commencement of any employment (at a point too soon) are generally not deductible.