Income tax: limits to the deductibility of self education expenses : section 82A

Section 82A of the Income Tax Assessment Act 1936 (ITAA) provides that a deduction for self-education expenses under subsection 51(1) is not to be greater than the net amount of self-education expenses less $250.

This Ruling considers the operation of section 82A and, in particular, the meaning of the following expressions used in that section: (a) expenses necessarily incurred by a taxpayer in connection with a prescribed course of education; (b) prescribed course of education; (c) course undertaken for the purpose of gaining qualifications for use in carrying on of a profession, business or trade, or in the course of any current employment.

This Ruling does not discuss the circumstances in which a deduction for self education expenses is allowable under subsection 51(1), as this is considered in Taxation Ruling TR92/8, nor does it discuss the substantiation requirements contained in Subdivision F of Division 3 of Part III.

Taxation Rulings IT 262, 264, 265, 266, 267, 268, 282, 283, 313, 314, 315, 317, 323 and 2290 are withdrawn.

Section 82A does not operate to reduce the amount of expenses of self-education allowable under provisions of the ITAA other than subsection 51(1).

Section 82A operates to limit the amount of expenditure to be considered for deductibility under subsection 51(1) to the net amount of expenses of self education less $250. In calculating 'net amount of expenses of self education', it is necessary that the self education expenses be 'necessarily incurred' in connection with the prescribed course (and not include Higher Education Contribution Scheme contributions). Compulsory and unavoidable expenses as well as those that are incidental to the course of study are regarded as expenses necessarily incurred.

The expression 'prescribed course of education' as used in subsection 82A(2) refers to an organised course of study, full-time or part-time, provided by schools, colleges or universities. It also includes courses provided by organisations and institutions whose primary function is the provision of systematic instruction, training or schooling in a subject, skill or trade. It does not include instruction in a sport or recreational activity.

A course is undertaken for the purpose of gaining qualifications for the purposes of section 82A only if it has a real and direct connection with the activities by which the person undertaking the course gains or produces his or her assessable income.

The expression 'qualifications' refers to the attainment of a level of competence and does not require formal qualifications to be conferred at the completion of the course.

Prior to the income year commencing 1 July 1985, 'expenses of self education' were taken into account under section 159U in calculating a taxpayer' s concessional expenditure rebate available under section 159N. The maximum amount qualifying for the rebate was limited by section 82A to $250. Where the self education expenses exceeded $250, the excess expenditure was deductible under subsection 51(1) if it was incurred in gaining or producing assessable income. Expenditure on a taxpayer's own education which did not come under section 159U as 'expenses of self education' was able to be deducted wholly, provided it met the requirements of subsection 51(1).

Notwithstanding the repeal of section 159U, the amount of self education expenditure allowable under subsection 51(1) still depends on the operation of section 82A.

If the expenditure does not fall within the definition of 'expenses of self education' in section 82A, the whole amount may be deducted, provided it meets the requirements of subsection 51(1).

If the expenditure deductible under subsection 51(1) falls within the definition of 'expenses of self education' in section 82A, section 82A reduces by an amount of $250 the net amount of self-education expenses allowable to a taxpayer under section 51(1).

Section 82A applies if: (a) the expenses of self education are necessarily incurred by the taxpayer, (b) those expenses are incurred for or in connection with a course of education provided by a school, college, university or other place of education, and (c) the course is undertaken by the taxpayer for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade, or in the course of any employment.

The net amount of the expenses is calculated by reducing the total expenses by: (a) the amount of Commonwealth educational assistance for secondary education, technical or tertiary education or post-graduate study (other than amounts in the nature of an allowance for maintenance or accommodation) that were capable of being claimed by the taxpayer or by another person in respect of the taxpayer, but excluding amounts that have been or will be included in the taxpayer's assessable income, and (b) any payments received or receivable from the taxpayer's employer or other person in the year of income in respect of the self-education expenses.

Expenses of self-education that are deductible under provisions of the ITAA other than subsection 51(1) (e.g. expenses deductible under section 53 or 54), are not subject to section 82A. Therefore, provided the requirements of those provisions are satisfied, the whole amount of those expenses is deductible.

Subsection 82A(2) expressly excludes payments made under the Higher Education Contribution Scheme from being classified as an expense of self-education.

Compulsory and unavoidable expenses as well as those that are incidental to the course of study are regarded as expenses necessarily incurred.

Subsection 82A(2) defines a 'prescribed course of education' as a course of education given by a school, college, university or other place of education .

In our view, a course of education is a course or program of study involving systematic instruction, training or schooling, which is basic to the concept of education.

To qualify as a course of education, a program of study need not be conducted on a full-time basis. Part-time courses of study can also be courses of education.

A course of education does not include short-term refresher courses, in-service activities or short-term staff development courses. These are considered to be more akin to on-the-job training.

Instruction in a sport or recreational activity is not education in the generally accepted meaning of the term regardless of the taxpayer's purpose in undertaking the instruction. The instruction therefore is not a course of education for the purposes of section 82A.

A place of education is an establishment, organisation or institution whose primary function is to provide systematic instruction, teaching or schooling in a subject, skill or competency. This view is supported by the decision of Board No.2 in Case M11 80 ATC 78; (1980) 23 CTBR (NS) Case 97 in which the words 'other place of education' were interpreted as having a similar meaning as the words 'school, college or university'.

The view stated in paragraph 25 also has support from other Court and Board decisions. In Barry v Hughes (1973) 1 All ER 537 it was said that an educational establishment was one whose primary function was that of education. In Case S95 85 ATC 688; (1986) 29 CTBR (NS) Case 2 , the No. 1 Board held that a correspondence course was a course provided by a place of education even though the provider did not conduct set classes or have a building at which classes were conducted. The provider was an organisation established with the dominant function of training and educating people in various skills and knowledge.

Courses conducted by an institution or organisation whose primary function is not that of education (e.g. a professional organisation) are not subject to section 82A because the course provider is not a place of education for the purposes of section 82A.

Our interpretation of the meaning of the expression 'other place of education' has changed from the view expressed in Taxation Ruling IT 283 (which is now withdrawn). That Ruling stated that if a course or program of study is a course of education, then the place where it is given is a place of education. We consider that this former view is not appropriate given the Court and Board decisions mentioned in paragraphs 25 and 26.

The 'purpose' referred to in the definition of prescribed course of education is the taxpayer's dominant subjective purpose for obtaining the qualifications. This view is supported by the decision of No 1 Board of Review in Case S95 :'It is sufficient if the taxpayer has the subjective purpose of gaining an attribute, quality, accomplishment or skill which he intends to use in the course of carrying on a profession, business, trade or employment.' Thus, the qualifications must be sought to enhance the qualities of the taxpayer in his/her profession or employment rather than to enrich the taxpayer as a person. That is, there must exist a real and direct connection between the taxpayer's purpose in undertaking the course of self education and the activities by which the assessable income is gained or produced.

If the taxpayer pursues a course of study for the purpose of a hobby or for recreation the expenses are not deductible, irrespective of the qualifications resulting from the course.

In looking at the meaning of the term 'qualifications' for the purposes of section 82A, the Commissioner adopts the view expressed by No.2 Board of Review in Case S88 1985 ATC 64; (1985) 28 CTBR (NS) Case 90 . In that case the Board did not limit the term 'qualifications' to obtaining a degree or certificate but held that the term is wide enough to embrace the attainment of skills or accomplishments. The Commissioner accepts that this can also include a quality or attribute that equips a person or makes them competent for doing something .

Will Reed, who is an editor in a publishing house, undertakes a speed reading course through an organisation whose primary objective is to improve people's reading skills and comprehension.

The course is considered to be a prescribed course of education because the primary function of the course provider is the education of people in speed reading skills. Since the skills acquired will be used in Will's employment, section 82A applies.

Polly Ester is employed as a manager with a large textile company. Her employer actively encouraged her to attend the Outward Bound Course which is conducted by the Australian Outward Bound Memorial Foundation. This is a full time residential course of approximately 26 days duration, where trained instructors supervise physical activities designed to develop personal characteristics of the trainees.

The course is accepted as being a course of education provided by a place of education. As the qualifications or skills acquired by Polly Ester will be used in her employment, the course is a prescribed course of education for the purposes of s.82A. The active encouragement by Polly's employer for her to participate in the course is strong evidence to support this view. (Had the course been undertaken for recreational, hobby or private purposes, neither section 51(1) nor section 82A would have applied).

Con Struct who is employed as a civil engineer is completing part-time university studies to obtain a Master of Business Administration degree. In the year of income he incurs the following expenses: Child minding fees $500 University administration fees 200 Depreciation of computer 200 Computer repairs 100 Stationery 100 ---------------------------------------------------- Total Expenses $1100

Child minding expenses, depreciation and computer repairs are not deductible under subsection 51(1) and do not form part of the calculation for the purposes of section 82A. Only the university fees and stationery expenses are deductible under subsection 51(1) and the total cost of $300 is reduced by $250 pursuant to section 82A. A net deduction of $50 is allowable under subsection 51(1). The full cost of repairs and depreciation are deductible under section 53 and 54 respectively of the ITAA .

Bill Greentick is an employee accountant who incurred expenses in completing the Professional Year of study. This study was required for membership of the Institute of Chartered Accountants in Australia.

Since the Institute is not an organisation whose primary function is that of education, the professional year of study is not a prescribed course of education. The self-education expenses incurred by Bill are not subject to section 82A and are therefore deductible in full, provided they meet the requirements of subsection 51(1).

Gough E Lixure is employed as a pharmacist and is claiming the cost of the Pharmaceutical Society's Annual Pharmacy Refresher Course.

The cost of the refresher course is not subject to section 82A because a short-term refresher course is akin to on-the-job training rather than being a course of education. Furthermore, the Pharmaceutical Society is not an organisation having as its primary function the provision of systematic training and therefore is not considered to be an 'other place of education'. Therefore, provided the requirements of subsection 51(1) are satisfied, the whole amount of Gough's self-education expenses is deductible.