Taxation—reforms to work-related self-education expenses

Budget Review 2013–14 Index

Kali Sanyal

Background

The Government plans to cap work-related self-education expenses deductions.

Deductible education expenses vary by category of activity in relation to a taxpayer’s earned income. A taxpayer may incur costs in undertaking a course of study or other education activity, such as conferences and workshops, including tuition fees, registration fees, student amenity fees, textbooks, professional and trade journals, travel and accommodation expenses, computer expenses and stationery. Deductible expenses are those incurred in the production of the taxpayer’s current assessable income.

Currently, a taxpayer can claim unlimited such expenses as deductions when lodging a tax statement. The Government is somewhat nervous that the potential for uncapped claims for a wide range of expenses allows some people to enjoy significant private benefits at taxpayers’ expense.

According to Taxation Statistics 2010–11, released by the Australian Taxation Office (ATO) in April 2013, tax deduction claims from individual taxpayers for self-education purposes rose to $1,166 million in income year 2010–11 (taxation year 2011–12) from $1,103 million in the previous year.[1]

Budget measure

On 13 April 2013, the Government announced that a cap on tax deductions on work-related self-education expenses would be part of targeted reforms in the 2013 Budget:

The Government will better target work related self-education expense deductions as part of a package of reforms to make a down-payment on the National Plan for School Improvement.

… Without a cap on the amount that can be claimed under this deduction, it's possible to make large claims for expenses such as first class airfares, five star accommodation and expensive courses.[2] 

Effective 1 July 2014, the Government will put an annual cap of $2,000 on this deduction and estimates that this measure will save $250.0 million in 2015–16 and $270.0 million in 2016–17, giving total budget savings of $514.3 million over the forward estimates period.[3]

The Government intends to retain the system where employers are not liable for fringe benefits tax for education and training they provide to their employees, unless an employee salary sacrifices to obtain these benefits. This is in recognition of the need to encourage employers to continue to invest in the skills of their workers.

The typical claim for formal qualifications through self-education expenses is less than half the maximum proposed. For expenses such as conferences, seminars and workshops, including those held locally, the typical claim is only a few hundred dollars, remaining well below the cap.[4]

Accordingly, the Government’s stated reform has a small target and the majority of those with self-education expenses will not be affected by this change.

The anticipated savings from this measure will be redirected to the Government’s recent initiative ‘Better Schools – A National Plan for School Improvement.[5]

Stakeholders’ reaction

Academic groups have condemned the intended cap:

The dean of the business school at the University of Technology, Sydney, Roy Green, said on Monday it was a "remarkable step" for a government which supported encouraging individuals to contribute to the knowledge based economy to take.

The dean of the Melbourne Business School, Zeger Degraeve, said the decision was "unfortunate".

"Stripping money from one area of education to put into another is not sound, integrated policy," he said.

… Professor Green said given the government has stated its intent to crack down on first-class airfares and five star accommodation being claimed as self-education expenses, it should have specifically targeted those claims instead of introducing a blanket restriction.[6]

Universities Australia chief executive Belinda Robson warned jobs could go:

‘Universities will be looking at every opportunity for making cost reductions,’ she said.[7]

The Government has said that it will revisit the issue, with further consultation with stakeholders to better target the deduction while still supporting essential training. As part of that consultation, a discussion paper will be released in late May 2013.



[1].       Australian Taxation Office, Taxation Statistics 2010–11, 2013, p. 17, accessed 16 May 2013.

[2].       W Swan (Deputy Prime Minister and Treasurer), Reforms to self-education expense deductions, media release, 13 April 2013, accessed 16 May 2013.

[3].       Australian Government, Budget measures: budget paper no: 2: 2012–13, 2012, p.30, accessed 16 May 2013.

[4].       Reforms to self-education expense deductions, media release, 13 April 2013, op. cit.

[5].       The national plan for school improvement website, accessed 16 May 2013.

[6].       T Dodd, ‘MBA schools slam tax deduction cap’, The Australian Financial Review, 16 April 2014, p. 6, accessed 16 May 2013.

[7].       S Maiden, ‘Students pay for reforms’, The Sunday Times, 14 April 2013, p. 5, accessed 16 May 2013.

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