On 13 April 2013, the Deputy Prime Minister and Treasurer, the Honourable Wayne Swan MP issued a media release foreshadowing a $2000 per annum cap on deductions for “self-education expenses”.
On Friday 31 May 2013, the Assistant Treasurer showed his support for the proposal in a Media Release announcing the issue of a discussion paper for the proposal in which he described the measure as “a down-payment on the Gonski reforms underpinning our National Plan for School Improvement.”
The Treasury website announcing the release of the discussion paper helpfully explains that the measure is a “reform to better target education expense deductions” and ensure that [the Gonski reforms ] are sustainable.
To help deliver these reforms and ensure that they are sustainable, a $2,000 cap on work‑related education expense deductions will be introduced from 1 July 2014. When this measure was announced, the Government made it clear that it would consult. Part of this consultation process is the release of a discussion paper.
The discussion paper Reform to deductions for education expenses examines the current treatment of education expenses including what qualifies as an education expense, and works through a range of issues related to this cap, such as the effect of the cap on the depreciation of capital assets relating to education, the current $250 no‑claim threshold and personal services income. The proposed changes in the income tax legislation and fringe benefits tax legislation are also outlined.
The Government welcomes views on this discussion paper, and written submissions will be accepted until 12 July 2013.
In case you were wondering whether the proposals extended to continuing professional development costs such as attending conferences, the discussion paper includes a list of the types of costs that are targeted:
The following expenses are some examples of what will be included in calculating the cap:
tuition fees, including fees payable under FEE‑HELP and self‑education expenses paid with a OS‑HELP loan;
registration fees for conferences, workshops or seminars;
textbooks and professional or trade journals;
stationery and photocopying;
computer expenses, including decline in value (depreciation);
student union fees and student services and amenities fees;
accommodation and meals when participating in a course that requires a person to be away from home for one or more nights;
running expenses if there is a room set aside for education purposes — such as the cost of heating, cooling and lighting that room while used for studying; and
travel expenses for travel from home to a place of education and back, and from work to a place of education and back.
As you would expect, the list is not exhaustive. “Deductions for a range of expenses are not affected by this measure. For example, taxpayers will continue to claim deductions, provided they meet the necessary tests, for the following expenses:
- professional membership fees;
- overtime meal expenses;
- travel expenses;
- home office expenses;
- professional indemnity and income protection insurance; or
- protective clothing and uniform expenses.”
In case you were wondering about apportionment:
Where an education expense is included in a payment for broader services, the component relating to education will need to be apportioned and will be included in the calculation of the cap. For example, if the membership fee of a professional association includes a certain number of hours of professional development or training programs that are included in the membership, the education element of the membership fee must be apportioned and included in the cap.
In other words, if membership to an organisation contains an allowance for continuing professional development training, the organisation needs to itemise the value of this training component.
While employers that meet employees’ costs of professional development or education will not have deductibility or the FBT “otherwise deductible” rule affected, the new measure will apply to salary sacrifice arrangements:
As part of the proposed measure the Government will ensure no FBT liability arises in respect of employer‑provided education expense payments.
However, the intent of the measure may be undermined if employees can salary package education expenses. If FBT was not payable, the employee would effectively be able to access the deduction in another form. Therefore, the FBT ‘otherwise deductible rule’ will not apply where the education is provided through a salary packaging arrangement.
Having identified the mischief in the operation of the current law that must be targeted, the discussion paper poses 15 questions for consultation:
1. In your industry or field, are there studies or courses that are compulsory and must be completed in order to meet licence requirements?
a) What is the average amount of the expense?
b) What is the highest amount of the expense?
c) What is the nature of these courses?
2. Is training undertaken in your industry predominantly held in Australia or overseas? Can you provide examples?
3. In employment relationships, are employees largely obliged to incur work‑related education expenses themselves or are they employer provided? Do you anticipate this changing in response to this measure?
4. Are you aware of examples where education expense deductions can be claimed under the current arrangements, even where significant private benefits are enjoyed?
5. Are there any lessons for Australia in the experiences of other countries with restrictions on education expenses deductions?
6. Should the $250 no‑claim threshold under section 82A of the ITAA 1936 be removed when the $2,000 cap is introduced?
7. How should this be prioritised?
8. What types of assets that relate to an education activity are placed into a low‑value pool or similar small business pool?
9. What are the advantages/disadvantages of the ‘reasonable estimation’ method proposed above?
10. Is the use of low‑value pools under these circumstances appropriate?
11. Are there any unintended consequences from the proposed reforms?
12. What practical aspects of the proposed reforms need further consideration?
13. Are there any interactions with other areas of the tax law that need to be addressed?
14. Do you consider that further amendments will be required to the tax law outside of those already mentioned in the discussion paper?
15. Are there alternative approaches that you would like to see considered? How would they work in practice and are there any precedents in Australia or other jurisdictions?
Good luck! You have until 12 July 2013.
PS – don’t mention GST input tax credits.