Deductions and work-related self-education expenses

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By now, you may have received your PAYG statement from your employer and started the process of compiling the relevant receipts, tax invoices and documents needed to lodge your tax return.

As you look over the paperwork relating to your work-related expenses, it’s probably safe to say that when you were incurring at least some of these expenses there would have been an expectation that you would be able to claim a deduction at a later date – thus helping ‘offset’ some of the cost to you.

Importantly, each year, the ATO releases guidance on what they will be keeping a close eye on when they begin their audit of tax returns that are lodged for the past financial year. More often than not, and this year being no exception, claiming deductions for work-related expenses (especially self-education expenses) is regularly an area of focus for the ATO.

This focus is probably due to the large number of Australian taxpayers who claim deductions each year for work-related expenses, as well as the value of each claim. For example, in the ATO’s most recently released statistics, in the 2015-16 financial year, 8,627,122 individuals made a claim for work-related expenses and the average value of each individuals claim was $2,548 (and the median value was $1,123) – all up, that’s close to $22 billion in work-related deductions.

As such, if you prepare your individual tax return yourself or use a registered tax agent, it’s important to get your deductions right, especially when it comes to work-related expenses. With this in mind, we build upon an article we wrote last year, by diving into the ins and outs of work-related self-education expenses.

Please note: Work-related expenses in general (let alone the specifics around each type) can be a complex and sometimes confusing area, which is why it’s important to consider seeking professional advice from a registered tax agent prior to lodging your tax return.

 

Definition of a work-related expense
Before exploring work-related self-education expenses, it’s important first to provide a brief definition of what constitutes a work-related expense in general.

In a nutshell, a work-related expense is defined as an expense that you incurred in relation to performing your work duties. Furthermore, to claim a deduction for a work-related expense, you must be able to satisfy three main rules:

  1. It must be directly related to earning your income
  2. You must have a record to substantiate your claim, such as receipts, invoices or bank statements
  3. You must have personally incurred the expense and not have been reimbursed by your employer.

Further to this, if the expense incurred was for both private and work purposes, you can only claim a deduction for the work-related portion of the cost.

 

General record keeping guidelines for work-related expenses
When it comes to work-related expenses and the specifics around record keeping, there are two thresholds that you need to be aware of:

  1. If the total claim for work-related expenses is less than or equal to $300, you will not be required to provide written evidence; however, you must be able to show how you worked out your claim.
  2. Whereas, if the total claim for work-related expenses is greater than $300, you will need to provide written evidence to substantiate your claim. Please note: The $300 doesn’t include certain claims, such as car expenses, meal allowance, award transport payments allowance and travel allowance expenses. There are specific written evidence rules regarding these claims.

In addition to above, it’s important to note that up to the first $250 of certain self-education expenses each year are non-deductible; however, this amount may be reduced depending on the type of expenses you have incurred in that particular year.

 

Types of work-related expenses 
Whilst we provide a general overview of work-related self-education expenses below, there are other types of work-related expenses that you may be eligible to claim a deduction for. For example:

  • Home office expenses,
  • Mobile phone, internet and home phone expenses,
  • Tools and equipment expenses,
  • Car expenses,
  • Travel expenses,
  • Clothing, laundry and dry-cleaning expenses.

Work-related self-education expenses
In our article, ‘Tax refunds and investing in yourself’, we explore a quote from Warren Buffett, “The most important investment you can make is in yourself.” One of the things that we touch on is the benefit of undertaking an educational course. For example, this can help expand your knowledge and skillset, which may then lead to a promotion, a pay rise and/or an improvement in job security and stability.

In terms of work-related expenses, if you undertake self-education and the relevant educational course satisfies several conditions, then you may be able to claim a deduction for certain self-education expenses.

For example, the educational course (administered by a school, college, university or other place of education) must lead to a formal qualification. Furthermore, it must be sufficiently linked to your existing work activities, and in this regard:

  • Maintains or expands upon your knowledge and/or skillset in this specific area, or
  • Results in, or is likely to result in a pay rise in this specific area.

Please note: You can’t claim self-education expenses for an educational course that only generally relates to your work activities (e.g. is just in the same field or industry) or enables you to obtain new employment.

With this in mind, the self-education expenses that you may be able to a claim a deduction for could include, but are not necessarily limited to, for example:

  • Educational course or tuition fees.
  • Please note: You can't claim repayments you make under HECS-HELP or student loan programs, such as Higher Education Loan Program (HELP) or the Trade Support Loans Program (TSL).
  • Student union, services and amenities fees.
  • Textbooks, as well as professional, trade or academic journals.
  • Stationery, photocopying, and postage.
  • Decline in value for depreciating assets costing greater than $300, for example,
  • Decline in value of a computer (apportioned depending on private and self-education use).
  • Purchase of equipment or technical instruments costing equal to or less than $300 (e.g. financial calculator).
  • Repair costs to assets used for self-education purposes.
  • Internet usage (excluding connection fees) and phone calls.
  • Accommodation and meals (i.e. if your course requires you to be away from home overnight).
  • Home study running expenses, such as,
  • Heating, cooling and lighting of a room set aside specifically for self-education purposes.
  • Travel expenses (e.g. allowable travel to-and-from place of education and parking fees).

Importantly, even though attending workshops, conferences or seminars don’t typically lead to a formal qualification, you may still be able to claim the cost of attending events such as these where there is a sufficient link to your existing work activities.

 

Moving forward
Given this is a general overview, it’s important to seek professional advice from a registered tax agent so that you can gain a better understanding of your eligibility (and, the required record keeping) to claim a deduction for work-related expenses.

If you have any questions regarding this article, please do not hesitate to contact us.