Current rules for self education tax deductions

Under the current tax regime, tax deductions can be available for self education expenses where there is a sufficient connection between the study and a person's income earning activities. These expenses can include the cost of industry or educational institution courses as well as attendance at work related seminars and conferences, and may cover course fees, books and travel expenses.

Often the challenging part under the current rules has been satisfying the Tax Commissioner that the study or conference is connected with your work and not some recreational pursuit, for example.

Federal Government cap announced

All this may be about to change with the Federal Government announcing last week its plans to put in place an annual  cap for self education expense deductions.

Taking effect on 1 July 2014, deductions will be restricted to an annual cap of $2,000 per person.

According to Deputy Prime Minister and Treasurer, Wayne Swan, the cap is part of a package of reforms to fund the National Plan for School Improvement and is intended to make the system more fair by discouraging dubious claims made under this entitlement, such as for first-class airfares or five star accommodation.

How extensive these “rorts” are is another question, but a $2,000 cap is certainly not going to allow much room for first class airfares to anywhere, and you are unlikely to be going very far “cattle class”  to attend a conference and still be able to claim a tax deduction once the new caps are introduced.

The cap won't apply when your employer meets the costs

Under the announced proposals, the $2,000 cap will not apply where an employer meets the costs, provided there is no salary sacrifice arrangement under which the employee is effectively paying. If you can convince your employer to pay for that course at Cambridge Judge Business School  then it seems that the new caps won’t operate to prevent you turning left when you get on the plane and staying at somewhere refined when you land in Heathrow.

Of course, if you have just enrolled in a full fee paying Master's course (or even just one course unit in a MBA) where you are meeting the costs yourself the idea of improving your skills in the long term just became a whole lot less financially viable.

Who will be affected

Industry groups, professional associations  and providers of education services (amongst others) are also likely to be adversely affect by the proposed changes.