My tax return has never been anything special. I vary between owing $500 to the Australian Tax Office (ATO) or having $500 credited to me, meaning that generally my employer has withheld the right amount of tax and I haven’t had any major deductions.
I had always used HECS-HELP (a loan scheme to help eligible Commonwealth supported students to pay their student contribution amounts through a loan or upfront discounts) to pay my university fees, which is not deductible for tax purposes regardless of whether you pay upfront or not. Therefore, I foolishly assumed that my MBA fees were also not tax deductible. Luckily, a friend of mine set me straight over dinner recently.
Because my MBA fees are covered by FEE-HELP rather than HECS-HELP (I have blogged about the difference here), they are eligible to be claimed as self-education expenses provided that the following criteria is met:
The course must have a sufficient connection to my current employment and:
- maintain or improve the specific skills or knowledge required in my current employment, or
- result in, or is likely to result in, an increase in my income from my 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. Provided the sufficient connection is established, deductions that can be claimed include accommodation and meals (if away from home overnight), computer consumables, course fees, equipment repairs, fares, home office running costs, internet usage, postage, stationery, textbooks, student union fees, etc.
My MBA fees for the FY2015 year were $35,000. As you can imagine, this made an extreme difference to my tax return. I went from owing the ATO around $600 to being entitled to a tax return of $17,000! I am weary however, that because this is a dramatic difference from my prior tax returns and the deduction was quite large, it will most likely be flagged by the ATO. I will need to be prepared to justify how the MBA was sufficiently connected to my current employment at the time of the expenses being incurred. My tax return was processed quickly, without a review, and the funds are already in my bank account. This doesn’t mean that I won’t be audited later on though.
Those looking to claim deductions for self-education expenses should read the ATO’s tax ruling in relation to the matter. As this financial year, I will be employed as a Lawyer, I will need to research whether there is a sufficient connection between the MBA studies and my employment. So far, based on my very preliminary research, I have found a case regarding a Lawyer claiming MBA fees for self-education discussed here. Generally, there are a number of cases that have been heard at the Administrative Appeals Tribunal (AAT) concerning claiming MBA course fees as self-education deductions including:
- This decision which involved an Engineer who undertook his MBA in Switzerland. Prior to his leaving for Switzerland, he was employed in Australia by an Australian subsidiary of a Japanese multi-national engineering corporation. He said that although whilst he completed the course, he was on leave without pay from his employer, he did not resign his position with the company in Australia and was told, and so believed, that on his return at the end of the course, he would be able to resume duties. On his return to Australia, he did not regain his previous position or one like it. He did, however, engage in activities of a consulting nature that led to a higher income than he had been receiving before he obtained his MBA. The AAT decided that the MBA fees were not sufficiently connected to the Engineer’s job in Australia. It was expenditure incurred by him in the anticipation that on completion of the course, he would have expertise in a field in which he did not previously have expertise, and thereby obtain a position consistent with the new qualifications that he would hold.
- This decision concerning a Teacher who undertook his MBA at Melbourne Business School. In his income tax return for FY2013, the applicant returned income totalling $71,268 (including $65,780 earned from his employment) and claimed a deduction of $19,779 for “work related self-education expenses”, comprising the course fees for six subjects ($19,500), which included Financial Accounting ($3,900) and Marketing ($3,900), and textbooks related to those six subjects ($279). The Teacher was audited and the deduction was disallowed, the ATO also charging him a civil penalty. The Teacher objected to the ATO’s decision and the matter was heard at the AAT. The AAT considered the Teacher’s position profile along with the syllabus of each of the courses where he had deducted fees. The Teacher also relied on letters of support from the school’s principal and the Dean of the Melbourne Business School. Under cross-examination, the applicant accepted that neither his enrolment in nor completion of the course entitled him to an increase in his salary as a classroom teacher and that the only way available to him to gain an increased salary was to obtain a position as a leading teacher. The AAT found in favour of the ATO in that the MBA was not required as a condition of the Teacher’s employment, nor was it required in order to fulfil his tasks and duties. Furthermore, as the Teacher admitted, it would not bring about an increase in his income from his current employment. In addition, there was no evidence supporting the Teacher’s contention that undertaking the course increased his likelihood of retaining his current position.
If you are uncertain whether your deductions will be accepted by the ATO, you could apply for a private tax ruling before lodging your tax return. This is something I will consider next year when lodging my FY2016 tax return.
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