Normally, if you undertake study that is connected to your work you can claim the costs of that study as a tax deduction – assuming your employer has not already picked up your expenses. 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.
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
- Likely to result in increased income from existing income earning activities.
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.
Facts of the case:
- 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
- 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.
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. 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 or email us and we can help clarify the issue for you.