Claiming Self-Education Expenses: How Not to Become a Target 

April 2017

If you're undertaking self-education studies, any deductible expenses must be related to the income you're earning via employment, not the industry you specialise in

If you undertake study connected to your work, usually you are able to claim the costs of that study as a tax deduction, assuming of course that your employer has not already picked up the tab. 

At present, there is also no limit to the value of the deduction you can claim. While this all sounds great and very encouraging, there are issues to consider before claiming your Harvard graduate degree, accommodation and flights as a self-education expense.

A Case of Relevance

A recent case before the Administrative Appeals Tribunal (AAT) looked at, amongst other claims, a large claim of $48,000 for self-education expenses.  In this case, the taxpayer was an engineer who was employed by a company in the heating, ventilation, and air conditioning industry. 

In his 2014 tax return, the taxpayer claimed significant expenses relating to research and development projects undertaken in connection with his PhD studies at university. His thesis related to efficient air conditioning systems.  A lot of the expenses he claimed were to test the findings of his new invention.  

The taxpayer also claimed that he spent considerable monies to protect his intellectual property and to submit applications for provisional patents for his invention. His argument for the self-education expenses was that his research was a form of self-education as he could not simply read a book or complete a course to advance his understanding. His experiments were a necessary part of his study. 

The problem for the taxpayer in this case was that the expenses were not really connected to his job (his income), but to the industry he specialised in.  The AAT found that the expenses were not deductible as they did not relate to his employment activities and there was no direct connection with the university course. Instead, the expenses related to his own inventions, which he hoped could be commercialised in the future. 

At best, the expenditure related to a possible future income earning activity, but the expenditure in this case was incurred too soon to be deductible. Without this nexus between income and the expenses, the expenses are not deductible.

Key questions to keep you off the ATO radar

If you're planning to claim costs for self-education, then make sure you're able to back up the following points in your record keeping:

  1. Is it directly related to your job?  To be deductible, the study must be connected to the income you are earning (either to maintain or improve your specific skills or knowledge), or is likely to result in increased income from existing income earning activities. 
  2. What does the ATO look for?  The ATO is more likely to target large self-education expenses. For anyone who has completed post graduate study you know that these expenses can ratchet up very quickly, particularly when you add in any other expenses such as books or travel. 
  3. Is the connection between your job and the expenses clear? It's important to ensure that there is a clear connection between your current job or business activity and the expenses you are claiming before you claim them.

If you are concerned about whether or not the self-education you are intending to complete is deductible, please call 02 9957 4033 or email us and we can help clarify the issue for you.  

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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