Self Education Tax Deductions Guide
Most people take up training courses to improve their skills or enhance their career, but did you know the benefits go beyond helping you at work?
Thanks to the Australian tax laws for self-education, you may be able to claim tax deductions for the courses you’ve studied!
If you are eligible, this means you can deduct the cost of many related expenses, including course fees, study supplies, travel to attend courses, accommodation, meals and a range of other eligible expenses from your taxable income and ultimately decrease your tax obligation for the financial year.
Here are the important things to know when filing your self-education tax deduction:
1. Requirements for Self Education Tax Deductions
You may be eligible to claim tax deductions for your self-education expenses if you are working and studying to:
- Upgrade your qualifications for your current employment
- Improve the specific skills and knowledge used in your current employment
- Complete a traineeship and the course forms part of that traineeship
- Get a qualification that will lead, or is likely to lead, to an increase in employment income in your current job.
You must also be able to answer yes to the following questions:
- Were you engaged in formal work activities during your training?
- Did you pay for the course yourself?
- Did your study lead to a formal qualification such as a certificate, diploma or university degree?
- Did you incur the expenses in the same financial year you’re trying to claim deductions?
Here are some examples. In each case, it is assumed you are paying for the course and related costs yourself, and you are incurring the costs in the same financial year you wish to claim your self-education tax deductions/tax returns.
A. Upgrading qualifications for your current employment — tax-deductible
You have been working as an educator in a child care facility and now want to pursue a bigger role. You decided to study the Diploma of Early Childhood Education and Care to advance your career in early childhood education.
This course is an upgrade of the Certificate III in Early Childhood Education, which is the qualification you use for your current employment as an early childhood educator. This course will help you develop skills you can use to be better at your current job. Diploma qualified educators typically get paid a higher income than Certificate III qualified educators even when employed in the same role.
You should be able to claim your training and other study expenses as deductions because:
- You were engaged in formal work during your training.
- The course is directly related to your current work and will increase your income in this role.
- Your course led to a formal qualification nationally recognised and accredited by the Australian Skills Quality Authority.
B. Studying a course to change careers — not tax-deductible
A few months after you finish the Diploma, you decide you’re tired of working in early childhood education and want to switch careers. You decide to become a bookkeeper. You enrol in the Certificate IV in Bookkeeping. Once you finish the course, you start applying for jobs in the bookkeeping industry.
In this case, it’s unlikely you will be able to claim a deduction because:
- The course was not directly related to your current employment and was unlikely to increase your income as an early childhood educator.
There are situations when you may be able to claim seemingly unrelated training courses as tax-deductible self-education expenses:
C. Improving specific skills or knowledge used in your current employment — tax-deductible
You completed your Diploma of Early Childhood Education and Care and were promoted to Centre Manager. You discover a big part of your job is actually managing the finances of your early childhood education centre – recording income and expenses, calculating payroll and submitting Business Activity Statements (BAS) to the Australian Tax Office each quarter.
You’re not trained in bookkeeping and keep making costly mistakes, so you decide to study the Certificate IV in Accounting and Bookkeeping. This course helps you learn how to use the MYOB accounting software package, calculate payroll, use the right tax codes and submit accurate BAS to the tax office. In this situation:
- You may be able to make a solid case for claiming your course costs as tax-deductible expenses because the course will improve your ability to do your current job.
D. At the time you were working and studying, your course led, or was likely to lead, to an increase in employment income – tax-deductible
Your employer likes to have lots of highly skilled educators working in your early childhood education centre to help maintain their “high quality” rating under the National Quality Standards. There is a policy of rewarding people who take on further education and training that will benefit the centre.
You have been advised by your employer that you will receive an increase in your hourly pay rate if you complete a safety qualification like Certificate IV in Work Health and Safety so you can help maintain higher WHS standards in the centre. In this case:
- You will likely be able to claim your expenses as self-education tax deductions because the course will lead to an increase in your employment income in your current job.
E. Studying a course that is only generally related to your employment — not deductible
You love your work as a Certificate III qualified early childhood educator and want to keep working with children, but decide you don’t want a long term career working in child care services.
You set your sights high and decide to become a child psychologist. It’s a long term process and it might be 8+ years before you complete your training, internship and start your first job as a registered child psychologist. You decide to keep working as an early childhood educator to support yourself while you study.
Even though the skills you are learning will probably help you in your job, and you’re going to specialise in child psychology, the high-level professional skills you’re learning in your degree are only generally related to your current employment. Since there is not a strong enough connection between your study and your current job, you will not be able to claim your study expenses as deductions.
Please consult a registered tax professional before claiming deductions!
In some cases, your eligibility to claim deductions will not be clear cut. It all depends on whether you can directly relate a course to your current role.
If you are not sure you are eligible to claim expenses, you can use the ATO self-education eligibility tool to check. We strongly recommend consulting a registered tax professional before claiming any deductions on your tax return because there may be penalties for an incorrect claim.
2. What Courses are Tax Deductible?
You can claim self-education expenses when the course you study leads to a formal qualification. Vocational qualifications, including Certificate III, IV and Diploma qualifications, are potentially tax-deductible because they are formal qualifications nationally recognised and accredited by Government bodies in Australia.
Self-education tax deductions are a great incentive to boost your professional development and advance your career. Simply find qualifications directly related to your current job or that will increase your income in your current job and start improving your career prospects.
You may find that you are required, by law, to upgrade to specific qualifications in order to advance into higher level and higher-paying jobs in your field. In that situation, it’s a no-brainer. Start working on the courses you need to take the next step in your career now. Check out the following career guides if you’re not sure where to begin:
1. Fast-Growing Jobs and Careers in Australia: Several careers are expected to grow rapidly in the coming years. Find out what these are and how you can apply for them.
2. Skill Shortages and the In-Demand Jobs in Australia: Skill shortages across the country have resulted in unfilled job vacancies. You can get into these in-demand jobs with the right training and experience.
3. The Ultimate Guide to a Training and Assessment Career: Do you enjoy teaching and training others? Or are you already an expert in your field looking to share your expertise? Here’s how you can make a career out of it as a Trainer and Assessor.
4. Work Health and Safety Career Guide: Occupational health is a growing concern in Australia. Workplaces across the country are now employing Safety Officers and WHS Representatives to manage and prevent accidents. Here’s how you can become a safety officer.
5. How to Start a Career in Child Care: Higher national standards for child care has pushed child care facilities to hire more qualified professionals. This has created massive opportunities for careers as childhood educators and centre managers. Here’s what you need to start yours.
6. How to Become a Registered BAS Agent: Registering as a BAS Agent is a popular way to start your own accounting or bookkeeping business. Just make sure you have all the requirements.
3. Other Course-Related Expenses You Can Claim
Course fees are not the only self-education expenses you can claim as deductions. You can get tax deductions for a huge range of equipment, material and other resource costs you incur as part of your course.
As an online student, deductions you can claim as part of the course, are the following:
- Home office running costs
- Internet usage
- Phone calls
- A decline in value for depreciating assets like your computer
- Interest payments on a computer you use to study
If you are studying part of your course face to face in a workshop, you may also be able to claim:
- Parking fees (only for work-related claims)
- Travel to-and-from place of education (only for work-related claims)
- Accommodation and meals (if away from home overnight)
At the end of the day, it doesn’t matter if you study your course Online or Face-to-Face course. You can claim many expenses as deductions to offset the cost of your course provided you meet the eligibility criteria outlined above.
4. Limitations on Tax Deductions
Unfortunately, some expenses cannot be claimed as tax deductions. These include:
- Repayments you make for the Student Financial Supplement Scheme (SFSS)
- Repayments for loans like the Higher Education Loan Program (HELP)
- Expenses for home office occupancy like mortgage interest
- Meals when you are at home
Important: If an expense is partly for your self-education and partly for other purposes, you can only claim the part you use for your self-education as a deduction.
For example, you buy a new computer for study but also use it for personal activities like watching movies, reading Facebook and surfing the web. You log your time on the computer and discover only 50% of your computer use is directly related to your course. Since you only use the computer for study 50% of the time, you can only claim 50% of the value of your computer-related expenses as self-education tax deductions.
Important: Remember to keep copies of your receipts, log your time using items like computers for study and keep detailed records of your expenses. You must be able to provide evidence of your expenses if you claim more than $300 in tax deductions.
In some cases, your total deduction may be reduced by $250 if all your expenses fall in the same category (Category A) as course fees, stationery, textbooks and transportation. There are other expenses you can’t claim but can use to offset this $250 reduction. See the ATO website for more information.
5. How to Calculate Your Tax Deductions
- The simplest way to calculate your tax deductions is to take all your financial information to a registered tax professional. They will examine your income and expenses, decide what can and can’t be claimed, then complete and lodge your tax return for you.
- If you have a very simple tax return or are comfortable lodging your own return, you can simply enter your income and deductible expenses into the eTax software or the new MyTax service in the MyGov online portal. They will calculate and lodge your tax return for you.
- If you just want a quick estimate, you can use the ATO self-education expense calculator to get a reasonably accurate assessment of your possible deductions
- If you want to be able to make a rough estimate of how much tax you’ll save on deductible expenses anywhere, anytime, you need to understand how tax deductions work:
Tax deductions reduce your taxable income. When you claim an eligible expense as a deduction, the value of the expense is deducted from your income. Your tax obligation is then calculated based on this reduced taxable income.
Gross Taxable Income – Deductible Expenses = Net Taxable Income
Your tax obligation is then calculated on your net taxable income using the individual income tax rates. The quickest way to estimate your tax savings is to work out your maximum tax rate and multiply that by the value of the expense you plan to claim as a deduction:
Maximum Tax Rate x Deductible Expense = Tax Savings
Here’s an example:
You earn $65,000 a year.
You enrol in a course that costs $3,000 and spend an extra $500 in computer repairs, phone calls and transportation. You are eligible to claim these expenses as self-education tax deductions. Your total deductible expenses are $3500.
Your income means you are paying a maximum tax rate of 32.5 cents for each dollar you earn over $37,000.
Simply multiply the deductible expense by your maximum tax rate to work out how much you will reduce your tax obligation for the year.
$3500 x $0.325 = $1,137.50 less tax owed to the ATO
If you/your employer pays tax from your income throughout the year, you will likely receive this money back as a tax refund.
If you do not pay tax on your income throughout the year and owe tax at the end of the year, your tax bill will be reduced by this amount.
Important: If your deductions lower your taxable income below a tax threshold, your tax savings will be calculated using 2 different rates.
For example, you earn $38,000 and claim $3500 in deductible expenses.
The first $1000 in deductions were taxed at a rate of 32.5 cents on the dollar.
The deduction reduces your income below the $37,000 tax threshold.
The remaining $2500 in deductions were taxed at a rate of 19 cents on the dollar.
Therefore your possible tax savings are calculated:
$1000 x $0.325 = $325
$2500 x $0.19 = $475
Total tax savings = $800
Important: If you do not have a high enough taxable income to pay tax (less than $18,000), you will not gain a tax benefit by deducting self-education expenses.
Recap: Claim Your Self-Education Tax Deductions Now!
Studying is a great way to advance your career AND reduce your tax bill. This means that you can invest in your professional development and reduce your tax obligations at the same.
If you studied an eligible course in the 2016-2017 financial year, now is the time to claim your deductions. If you haven’t started your course yet, make a plan and start today! Now is the perfect time to enhance your career by researching and completing the qualifications you need to reach your professional goals.
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