Proposed limit to be introduced in relation to self-education deductions

On 13 April 2013, Federal Treasurer Wayne Swan announced that work-related self-education expenses will be subject to an annual deduction limit of $2,000 per person.  The limit will apply from 1 July 2014.

This proposal was again outlined as part of the handing down of the Budget on 14 May 2013.

Currently, taxpayers are not restricted in the amount of self education deductions they are allowed to claim, apart from the $250 threshold that reduces most self education deduction claims.

What are self education expenses?

Currently

Under current legislation, self education deductions relate to costs necessarily incurred in connection with a “prescribed course of education”.

A “prescribed course of education” means “a course of education by a school, college, university or other place of education, and 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.”

Typically, self education costs are considered to be the costs associated with undertaking a university degree or some other course of education.  However, we note that Tax Ruling TR 98/9 considers that the term “qualifications” is defined widely so as to include not only degrees and certificates, but also the attainment of new skills or accomplishments.

Proposal

It is not clear from the Treasurer’s announcement if the current legislation dealing with self education will continue with a deductibility limit overlayed, or if the whole section will be repealed and replaced, which may include the introduction of new definitions and concepts.

Conceivably, if the government chose to rewrite the self education legislation, the definition of what comprises self education could be broadened to include not only the attainment of new skills (as per currently legislation), but also the maintenance of existing skills (i.e. continuing professional development).

Under current legislation, costs associated with continuing professional development are not considered to meet the definition of self education and, accordingly, are wholly deductible.  However, the proposed legislation may put this treatment in jeopardy.

Members of the William Buck Tax Services focus group are currently involved with the preparation of the Tax Institute’s submission to Treasury in relation to these proposed amendments.  In addition, we understand that Treasury will release a discussion paper in late May 2013 as part of its consultation process.  We will advise you when more information is available to ensure you are kept fully informed.