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Self-Education Expenses: What’s Eligible for Tax Deductions?

Self-Education Expenses: What’s Eligible for Tax Deductions?

The ATO has issued a new preliminary guideline regarding self-education expenses. Let’s explore what you can and cannot claim when it comes to deducting your self-education costs.

If you’re pursuing studies directly related to your current job, you typically have the opportunity to claim these expenses as a tax deduction, provided your employer hasn’t already covered them. The deduction value isn’t capped, which may seem like excellent news. However, before rushing to claim expenses for that Harvard graduate degree, accommodation, or flights, there are important considerations.

It often surprises individuals what cannot be claimed. Self-education expenses are not tax-deductible if you’re pursuing education to secure a new job or for purposes unrelated to your current source of income. 

The ATO has recently issued a fresh draft guideline on self-education expenses. While it doesn’t introduce new regulations, it reinforces the criteria the ATO will accept and those they won’t.

Self-Improvement Classes

Although it’s not always straightforward, a significant challenge in claiming deductions for self-improvement or personal development courses often lies in the fact that the knowledge or skills acquired are typically too general. Consider the case of a manager facing work-related stress due to a challenging family situation. She decided to enrol in a 4-week stress management course.

In this instance, the stress management course is not eligible for a deduction because it wasn’t specifically designed to enhance or maintain the skills or knowledge necessary for her current job.

When Your Employment Ends Mid-Course

If your employment (or your income-generating activities) comes to an end before you complete a course, you can only claim deductions for expenses incurred up to the point when you stopped working. Anything beyond that point isn’t deductible unless you secure a new role where the course remains relevant.

Overseas Journeys with Work Elements

Overseas educational trips may be eligible for tax deductions in specific situations. To qualify, it’s essential to demonstrate that the primary purpose of the journey is closely tied to your income-earning activities. Factors that support this claim include the amount of time spent advancing your work-related knowledge, ensuring that the trip isn’t primarily recreational, and establishing that the trip was either requested or endorsed by your employer. The Australian Taxation Office (ATO) maintains stringent criteria for such deductions.

For example, consider a senior history lecturer at a university who embarks on a trip to China with his spouse during a holiday break to enhance his understanding of his academic field. While his job doesn’t mandate research activities, he incorporates some of the 600 photographs he took and the knowledge gained during the tour into the courses he teaches. Despite this connection to his work, the journey isn’t tax-deductible because, while it has some relevance to his field, it remains secondary to the overall personal and recreational nature of the trip.

Overseas Conferences with a Hint of Recreation

We’ve all attended conferences where we spent several days attending sessions, only to indulge in a day or more of touring or leisure activities. When the primary purpose of your trip is directly related to your work, the ATO tends to be more flexible. If the recreational aspects, such as an afternoon tour arranged by the conference, are incidental to the conference’s main purpose, you can claim the entire expense associated with the conference.

When extending your stay beyond conference dates that aren’t incidental, it’s important to apportion expenses accordingly. For example, if you attend a four-day conference and then spend four days on vacation, and the conference is work-related, you can claim expenses related to the conference (assuming your employer didn’t cover them) and half of your airfare, reflecting the 50/50 split between conference and recreation.

Partial Deductibility: Some Course Expenses May Qualify

If a course isn’t fully deductible, you may still qualify for deductions on specific subjects or modules relevant to your employment or income-generating activities. For instance, a civil engineer pursuing an MBA can’t fully deduct the MBA itself, but expenses related to a project management subject within the degree may qualify.

In cases where your course is a Commonwealth-supported place, course fees aren’t claimable. However, the method of payment, such as using a government FEE-HELP loan, doesn’t impact the deductibility of course fees.

Be aware of Grand Claims

While there’s no set limit on self-education expense claims, it’s essential to be cautious with large claims, as the Australian Taxation Office (ATO) may scrutinize them closely. To make a valid claim, ensure a clear connection exists between your current job or business activity and the self-education expenses.

Airfares incurred for self-education purposes are deductible, provided you’re not residing at the location of the self-education activity. These airfares are considered part of the overall cost of pursuing self-education activities.

For more information on self-education expense deduction, get in touch with the tax experts at Bates Cosgrave.