In 2021 Tax Tips

If you are looking to reduce your taxable income, you might want to consider self-education expenses. If the education is required by law, or if it maintains or improves skills in demand for employment purposes, these expenses can be deducted from your taxes. 

To qualify as a deduction, there must also be an occupation connection between the education and the work done which benefits both employers and employees. 

The following article will explain how this works for individuals who pay their own tuition fees (self-employed) or those who receive reimbursement from an employer (employee). 

If you’re just getting started with earning your degree or know that starting a new career requires more education than what you currently have, then this article is for you. 

This post will cover the tax deductions and credits available to those who are self-educating themselves. It will also give some tips on how to save money while going back to school. 

One of the most important things about going back to school is finding ways to pay for it without taking out loans or using your savings account.

If you’ve been thinking about taking a course, but it seems like too much of an expense because of the taxes, then this blog post is for you!  This article will detail tax deductions that can be claimed on self-education expenses. Read on to find out more.

We hope this article will help you understand the tax deductions you can claim on self-education expenses. Self-education is an important part of any individual’s life, and many people can deduct these costs from their income taxes. 

The cost of tuition, textbooks, supplies and equipment for school purposes are deductible if they exceed 2% of your adjusted gross income (AGI) for the year. 

If you qualify as a full-time student to be eligible for this deduction, then there is no limit on how much money may be deducted because tuition costs alone often exceed 2%.

If you’re looking to save some money on your tax return, consider what you can claim for self-education expenses. You may be eligible to deduct the cost of tuition, books, supplies and equipment if the course or activity requires them to qualify for a degree. 

Make sure that every deduction is backed up with paperwork like receipts and invoices, so it’s easier when it comes time to file taxes. 

If this sounds like something you want help with, we have an experienced team of accountants who would be happy to guide you through the process!

What are self-education expenses?

Self-Education expenses are expenses related to courses or workshops provided by a school, college, university or other training providers. To be eligible for a tax deduction, you must take this course to gain a formal qualification in your current profession, business or trade.

With a range of self-education expenses qualifying as tax-deductible in Australia, your studies could save you a bundle come June 30 should your circumstances meet the strict criteria required by the Australian Taxation Office.

Self-education is essential for our minds, our general sense of well-being and our future employment prospects.

Technology, software, and work processes change so fast that you’ll quickly find yourself left behind in your career if you don’t keep on top of it. Worse still, find yourself replaced by a more efficient, clued-up, better-educated version of yourself! 

Generally speaking, self-education expenses are deductible to a taxpayer where the expenses are directly connected with the taxpayer’s current income-earning activities.

Self-education expenses are expenses relating to courses of education provided by a school, college, university, or other educational places. Self-education expenses also include work-related seminars and conferences conducted by commercial training organisations. 

In addition, expenses can include tuition fees, textbooks, and travel and living expenses where the course is undertaken away from home.

If you are eligible to claim your self-education expenses, the next step is to know and understand exactly which ATO self-education expenses you can claim and how. 

The other BIG bonus about continuing to educate yourself is that many self-education expenses are tax-deductible. Seriously, how much more encouragement do you need to make a better you?

Of course, when it comes to expenses for this personal development, we are talking about the ATO and tax here, so, unfortunately, you can’t just claim whatever you want.

What are the rules?

A few points to remember before including your expenses on your tax return:

There needs to be a direct connection between the course you studied and your employment at the time.

According to the ATO, you must satisfy one of these four conditions.

You need to be:

  • Maintaining your qualifications for your current role.
  • Improving your skills or knowledge used in your current role.
  • A trainee and the course you take forms part of the traineeship.
  • Able to show the course you were taking led to or was likely to lead to an increase in your current salary.

You cannot claim your expenses if your intention is to get:

  • a different job, or
  • money from a new income-earning activity (such as starting a new business).

You also cannot claim the following expenses

When Self Education Expenses are Allowable as a Tax Deduction

You may be able to claim the costs of self-education if one of the following describes your situation:

  • At the time the expense was incurred, there was a direct connection between the self-education and your current work activities.
  • You can show that the study leads to, or may result in, an increase in income from your current employment or work activities.
  • Any other direct connection can be found between self-education and ongoing work activities.

You cannot claim self-education expenses if:

  • The study was undertaken to obtain a new job, open up a new business, or facilitate new income-earning activities. For example, a receptionist studying to become a vet cannot claim self-education expenses as the qualification is not required for her current role; it creates a new income-earning activity.

The intention or purpose of a taxpayer in incurring self-education expenses is often considered when determining whether the expenses are characterised as allowable. 

Where a taxpayer genuinely undertakes a course of self-education to obtain a promotion within his current employment activities, this would normally indicate deductible expenses.

There are circumstances where apportionment is required. For example, suppose a study tour or attendance at a work-related conference or seminar is undertaken for income-earning purposes and private purposes. In that case, it is appropriate to apportion the expenses between the two.

Which education expenses can I claim on my tax return?

calculator-coin-pile

Tax-deductible self-education expenses include:

  • course/tuition fees
  • accommodation and meals (if away from home overnight)
  • travel expenses and parking fees
  • costs of computer consumables (printer ink, software, USBs etc.)
  • decline in value for *depreciating assets (for items costing more than $300)
  • purchase of equipment or technical instruments (costing $300 or less)
  • equipment repairs
  • home office running costs
  • internet usage (excluding connection fees)
  • phone calls
  • postage
  • stationery and textbooks
  • purchase of trade, professional, or academic journals
  • student union fees
  • student services and amenities fees

Can I claim my laptop if I use it for personal stuff as well as my studies?

Yes, you can! But only a percentage of the cost.

You can claim for expenses for both study and personal use, but you need to work out what percentage is study and what percentage is personal. 

So, if you use your laptop 70% of the time for your course and 30% for personal use, you can claim 70% of the expense as a self-education tax deduction.

Is there anything else I should know?

Yes – The $250 reduction on self-education expenses.

Now, the $250 reduction is where these expenses get a little complicated. Basically, in some cases, you can’t claim the first $250 of self-education expenses for textbooks, stationery, tuition and student fees, travel, car expenses and home office running costs.

However, you CAN offset other expenses against these, such as; depreciation on items costing over $300 and repair costs. These can reduce or cancel out that $250 deduction.

What You Can Claim as Self Education Expenses

General Self Education Expenses

If you are eligible to claim self-education expenses, these include:

  • Student union and course fees.
  • Textbooks, stationery, photocopying, professional and trade journals.
  • Home office expenses, software, printer cartridges, and internet access.
  • Interest on loans used to purchase computers or to pay fees.
  • Depreciation on major equipment, like computers and printers.
  • Other expenses, such as typing of assignments.
  • Accommodation and meals (if away from home overnight)
  • Computer consumables
  • Course or tuition fees
  • Decline in value for depreciating assets (cost exceeds $300)
  • Purchase of equipment or technical instruments costing $300 or less
  • Equipment repairs
  • Fares
  • Home office running costs
  • Interest
  • Internet usage (excluding connection fees)
  • Parking fees (only for work-related claims)
  • Phone calls
  • Postage
  • Stationery
  • Student union fees
  • Student services and amenities fees
  • Textbooks
  • Trade, professional, or academic journals
  • Travel to-and-from place of education (only for work-related claims)

If an expense is partly for your self-education and partly for other purposes, you can only claim the amount related to your self-education as a deduction.

Interest on Borrow Monies as a Self Education Expense

Interest incurred on borrowed monies, where the funds are used to pay for self-education expenses associated with a course of education, can be considered as a deductible expense. 

The expense can only be claimed if the self-education enables a taxpayer to maintain or improve their skills or knowledge or is likely to increase income from the taxpayer’s current income-earning activities.

The connection between the interest expense and the income-earning activity in each income year will be considered. 

Suppose interest is claimed because of a change in circumstances, for example. In that case, a change of employment, the necessary connection between the expense and the current income-earning activity may no longer exist. 

Therefore, interest is not deductible where the use of the borrowed money is to pay HECS-HELP fees.

Travel as a Self Education Expense

Travel expenses, including public transport fares and the running costs associated with motor vehicles, include:

The cost of travel between:

  • a taxpayer’s home and their place of education;
  • a taxpayer’s place of education and home;
  • work and a taxpayer’s place of education;
  • a taxpayer’s place of education and work.

Only the first leg of each trip is deductible where a taxpayer travels:

  • from home to their place of education, then to work; or
  • from their workplace to their place of education than home.

Meals and Accommodation as Self Education Expenses

  • As a student, you can only claim accommodation and meals tax rebates if you maintain a home and have to stay overnight, away from your home, due to your study. For example, if you live in Ballarat but study in Melbourne, you could claim the cost of staying overnight in Melbourne once a week if you have a permanent house in Ballarat.
  • The cost of meals is generally a private and non-claimable expense. However, you may be able to claim the cost of meals while travelling if:

        -You are undertaking self-education directly connected to your current work, and

                    -That self-education requires you to be temporarily absent from your home for one or more nights

Overseas Travel as a Self Education Expense

If you undertake overseas travel as part of your self-education, a deduction can be claimed for airfares incurred as part of self-education expenses when attending:

  • Overseas study tours
  • Sabbaticals
  • Work-related conferences or seminars
  • An educational institution

Eligible Courses to Claim Self-Education Expenses

Self-education expenses are deductible when the course you undertake leads to a formal qualification and meets the following conditions:

The course must have a sufficient connection to your current employment and:

  • maintain or improve the specific skills or knowledge you require in your current employment, or
  • or is likely to result in an increase in your income from your current employment.

You cannot claim a deduction for self-education expenses for a course that does not have a sufficient connection to your current employment even though it:

  • might be generally related to it, or
  • enables you to get new employment.

Examples:

  1. You are a nurse and attend a conference of nursing professionals dedicated to extending professional knowledge in your chosen nursing field. This maintains your skills in your chosen field of endeavour and is connected to your current income-earning activities. You will be able to claim a tax deduction for attending the conference and all related costs.
  2. You are a nurse and wish to train to become a doctor. You commence a medical degree. This opens up new income-earning opportunities in the future, and the cost of the course is incurred too soon to be regarded as being incurred in earning your assessable income. Therefore, the costs of the medical degree will not be tax-deductible.

Attending conferences and seminars

Even though attending such an event doesn’t typically generate a formal qualification, you can also claim the cost of attending seminars, conferences or workshops that are sufficiently connected to your work activities. 

This can include formal education courses provided by professional associations.

Example:

You are a nurse, and you attend a two-day professional development conference highlighting the latest advances in your field of nurses. 

The knowledge you gain from attending this conference will be directly applied to your work when you go back to the hospital where you work. You can claim the costs of attending the course and ancillary costs such as travel, accommodation, and meals.

If, as is often the case, the conference or seminar is held somewhere warm and sunny, and you decide to stay on for a short holiday afterwards, you will need to apportion your expenses between conference-related and holiday-related expenditure.

Don’t forget to keep your receipts!

It would be best if you kept ALL your receipts, diaries and logbooks safe and up to date, so tax time doesn’t mean searching through thousands of emails, the glove box or piles of paper in your office. Remember: You can’t claim it if you can’t prove it!

What are some common items that you might be able to claim without a receipt?

  • Membership Fees or Union Fees: These will often be itemised on your PAYG summary or Income Statement, or another summary you get from your employer or tax agent. As long as you have that documentation, a receipt is not normally required.
  • Fuel/Petrol with a logbook: If you keep a proper car logbook for at least 12 consecutive weeks (under five years old),  then you can use the business portion of your total car expenses for the year; fuel/registration/insurance/repairs/interest on a loan are all claimable.
  • Fuel/Petrol without a logbook: Even if you haven’t kept a car logbook, as long as you can demonstrate how you calculate the number of kilometres you’re claiming, the ATO will allow a claim of 72c per kilometre up to a maximum of 5,000km.
  • Computer Items: If you have a credit card statement and you make a note against it (e.g. new home office computer from JB Hi-Fi) at the time of the purchase, it’ll be easier to find and use as evidence. It also helps if you take a photo of the packaging, but if you can take a photo of the package, take a photo of the receipt, or keep the receipt in your email.
  • Stationery: If you have a credit card statement and you make a note against it (e.g. Big W, calculator, ruler, pack of pens). Again, it helps if you take a photo of the items as well.

What the ATO does NOT accept as proof for deductions with no receipt

It’s important to mention that there are some forms of evidence the ATO will never accept when you try to claim a work-related tax deduction without a receipt. These include:

  • Paying for something using cash. “I have no records, I paid cash” is not an excuse, as far as the ATO is concerned. If you say that to them, they will disallow your deductions.
  • Having an item with a price tag attached but no evidence you purchased it. The price tag doesn’t mean anything in this case.
  • A catalogue or advertisement with the price of an item, but no evidence you purchased it.

Income-tax-calculations

With tax time here once more, the Australian Taxation Office (ATO) has taken the opportunity to issue a fresh ‘health warning’ on best to avoid incorrect claims for work-related expenses.

The ATO’s media release highlights three golden rules for getting your expense claims right:

  • You have to have spent the money yourself (and not have been reimbursed);
  • The claim must be directly related to earning your income; and
  • You need a record to prove you have incurred the expense.

The ATO also highlights its ability to use real-time data to compare your expense claims with people in similar occupations and income brackets. This is a sophisticated technological process which means the ATO are readily able to detect non-compliance. 

This detection process should not be under-estimated, and it is, for this reason, it is important to get your expense claims right the first time to ensure that you do not inadvertently increase your risk of audit or review by the ATO.

It is worth noting the ATO also used the media release to pour cold water on the popular myth that you can make a ‘standard’ expense claim of $300 without having spent the money. 

This confusion stems from the fact that while you do not need receipts for expense claims of up to $300, you must have incurred the expense and can be called upon to support this. 

From a practical perspective, keeping receipts for all of your expense claims is by far the safest approach, no matter how demanding this may seem. In this regard, the ATO suggests its myDeductions tool accessible through its app can assist both individuals and sole traders.

The other common trap covered is the ability to make expense claims for uniforms (which have to be unique and distinctive) or other work-related clothing (which needs to be specific to your occupation). 

In other words, you cannot claim expenses for everyday clothes even if you only wear them to work and your employer requires this. The example used is the requirement by your employer that you wear black pants and a plain white shirt (most common in the hospitality industry).

The deductibility of employee travel costs still confuses people, covered in a draft ruling recently issued by the ATO. The general rule remains that your ordinary travel costs between home and your regular work location are not deductible. 

Very broadly, transport expenses (e.g. car, bus, train or airfares) are deductible where the travel is undertaken in performing your work activities.

Whether your travel is deductible is very much a question of fact, but the draft ruling specifies that you also have to consider whether:

  • Your work activities require you to undertake the travel;
  • You are paid, directly or indirectly, to undertake the travel;
  • You are subject to the direction and control of your employer for the period of travel; and
  • These factors have been contrived to give private travel the appearance of work travel.

The ATO website is peppered with good quality guidance on work-related expenses in many different “user-friendly” forms that can be readily accessed. However, you should follow the ‘golden rules’ highlighted above and keep your tax agent happy, and it is important that you:

  • Keep a close track of your work-related expenses throughout the year;
  • Retain the appropriate receipts or other documentation in support of your claims; and
  • Be in a position to explain the work-related nature of your expenses.

If you seek further clarity or guidance on avoiding incorrect claims for work-related expenses best, we encourage you to contact your local adviser for more information.

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