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  ― 76 ―

Self-Education Expenses

7.97. Expenses of self-education are in some circumstances deductible as expenses incurred in deriving income. Though the judicial authorities are not always reconcilable, they suggest a distinction between, on the one hand, the expenses of education undertaken primarily for the purpose of entering on an income-earning activity or a substantial increase in standing in an existing income-earning activity (which are non-deductible) and, on the other, the expenses of maintaining knowledge or skill required for an existing income-earning activity or improving such knowledge or skill (which are deductible). There is an obvious grey area between the two: a doctor who takes a higher degree to enable him to practise as a specialist may be denied a deduction; an employee who undertakes studies to qualify for promotion may not. Expenses that do not relate to any income-earning activity—the pursuit of a general education or a hobby—are not deductible. They are regarded as consumption.

7.98. Those expenses denied deduction as expenses of deriving income because they relate to entry on an income-earning activity or substantial increase in standing could, in principle, be treated as costs of acquiring capital and as generating deductions by way of amortisation against income of the activity in future years. There are, however, no provisions that allow this treatment.

7.99. In 1972 a new section (section 82JAA) allowing a deduction was inserted in the Act intended to cover some of those expenses that are not of a consumption character but are denied deduction as expenses of deriving income because they are undertaken for the purpose of entering on an income-earning activity or a substantial increase in standing. The deduction is limited to expenses for fees, books and equipment in connection with a course of education provided by a school, college, university or other place of education. There is a ceiling on the amount deductible, and the deduction is reduced by any amount allowed under the provisions of section 82J, which relates to education expenses of dependants. Recently the ceiling under both section 82JAA and section 82J was reduced from $400 to $150.

7.100. Reference has already been made to the Committee's recommendations in regard to the education expense deduction for dependants. Under those proposals the ceiling on the concession would be raised to $600 and become a rebate of tax; also, the expenses involved would be confined to fees for tuition. In the Committee's view the self-education expense concession should be retained, with a limit of $400, and it should remain a deduction rather than become a rebate of tax. It is, in effect, the allowance, as a current deduction, of expenses which would in principle be deductible as capital costs subject to amortisation, but which are more conveniently treated in this way. The range of deductible expenses is already narrower than under the existing deduction for education expenses of dependants; the Committee therefore does not propose a reduction in the range of qualifying expenses as it does in relation to the concession for dependants’ education. To avoid double allowance of the self-education expense deduction and the proposed rebate for dependants' education, there should be provisions of the kind at present appearing in section 82JAA(3).

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