Tax Tip 198: Fee-HELP and Deductibility of Course Fees

Fee-HELP and Deductibility of Course Fees


If you are studying a course relating to your current employment and you defer payment of the fees by using Fee-HELP will the fees still be deductible even though you do not pay it upfront?


Yes.

ATO ID 2005/26 states:

“Even though the taxpayer has obtained a loan for all or part of the fees for the course under FEE-HELP, this does not preclude the taxpayer from claiming a deduction for the expenses incurred in relation to the course.”



Example

Bart is a registered tax agent and is doing a Masters in Tax course and decides to use Fee-HELP to defer payment of the course because he is low on funds at the moment. So he enrols and incurs the debt of $10,000 for his subjects. He can claim a $10,000 deduction, save about $3,000 in tax, and not have to directly pay for the course until many years later when his taxable income rises above the repayment threshold – which is $51,957 in the 2018-19 tax year.



References

ATO ID 2005/26
Legal Database



See also these recent private rulings:

Authorisation Number: 1051472588169
https://www.ato.gov.au/law/view/doc...dited private advice&tm=phrase-basic-fee-help

Authorisation Number: 1051479369722
Legal Database

Authorisation Number: 1051479812479
https://www.ato.gov.au/law/view/doc...dited private advice&tm=phrase-basic-fee-help

Authorisation Number: 5010056303358
https://www.ato.gov.au/law/view/doc...dited private advice&tm=phrase-basic-fee-help

 

What happens if you start studying, then get a related job (say after 1 year of study) - is thee still a tax deductible component?

My understanding is you can't deduct expenses to get a new job, it has to be related to current employment - is that correct?

My particular situation is I'm looking at a significant career change (out of IT), and am looking to offset the costs a bit - so if I get related part time employment in the new field, can I deduct the education expenses...? Note, I am not asking for specific tax advice on my situation (I will talk to my accountant about that), just advising of my situation to give a contextual environment for general discussion of what may be possible.

Cheers,
Inertia.

 

Firstly the issue may be whether the course qualifies. Its a common matter of dispute for clients. An area where advice to the client often conflicts with what the client believes or wants to hear.

Eg Dentist undertakes a course to become a orthodonist. Non-deductible
Eg Accountant undertakes Ba Laws to be dual qualified. Non-deductible
Eg Accountant seeks be become a Cert Financial Planner. Non-deductible
If the course provides a new skill or qualifications ists probably not deductible. But if it expands and continues their qualification it likely is. Eg progressing to become a practicing accountant with CPA Australia and obtaining a Practicing certificate. A solicitor seeking entry to the Bar.

The ATO consider you should look at the present employment and consider whether the new skills being taught are presently USED in that job. If so its likely to be deductible. If not the fees may be preliminary to new skills and non-deductible. Eg Fred works in the warehouse as a cleaner. He seeks a forklift license to work on the floor. That is not deductible.

Once it is determined that the course is of a deductible nature (eg Accountant who seeks to become a SMSF accredited specialist) then all the costs related to that course must be considered. Payments of Fee-HELP, HECS etc themselves arent deductible. But the course fees are even if they are being paid by a help debt system. The notices (invoices) to defer the debt should be retained. For many years the ATO vaguely told people the wrong this on this sisue. They said payments of HELP debts werent deductible but never said - But you can claim the actual fees deferred. Sneaky and misleading.

And if a employer subsidises the fees or pays the Fee HELP account this can reduce the deductible amount.

Education and study

 

I wish I knew this a few years ago, at the time I also thought it wasn't possible to claim the HECS as a deduction and changed from HECS to full paying so I could claim the rest as a deduction.

I even spoke to the ATO, but I think as above, I was referring to if the repayment could be a deduction.

unfortunately the time limit on amendments has passed.

 

Bloody brilliant, thanks for the tip @Terry_w that's a huge cashflow benefit.

Anybody know how the ATO look upon the deductibility of MBAs? Assuming you work in a role that involves financial and business management/administration as a big part of the role. I know it's a pretty general qualification though

 

I think HECS is a different matter because it is not considered a loan - but I haven't researched this.

 

Even if you are over the threshold for repayment of HELP you might as well borrow it and kept he cash you would have used in your offset account

 

The ATO look at a range of factors which are well described in the complex tax ruling on self education expenses. Important you slowly read ALL of it.

I just encountered this very question today with a client and after a lot of questions we determined its likelty to be deductible. However I have seen many people denied this cost too.

You need to consider whether the MBA assists you to obtain a new better job or if it enhances and improves the existing taks and skills in the present role.

eg Fred works as a senior RAN engineer and leads the ship engineering operations. Fred knows the RAN find a MBA desirable to assisting postings to more senior roles including Canberra. The MBA doesnt assist his present role but does assist to fill in free time while serving on the ship at sea. He is also considering upskilling his management and leadership skills to depart the ADF after years of service.
Susan is a Army Major and wants to excel and remain in the ADF and wants to lead larger teams including being considered for future promotions as well as being a more capable and confident leader with larger and larger projects. A MBA is also absolutely necessary for continued advancement.

Susan's MBA is likely to be deductible where Fred 's is not.

 

Does an employer's support of the study, through funding part of it and/or permitting study during work hours (in which case you are technically being paid to study) add weight to the deductibility argument?

 

I would say it does add some weight but it doesn't necessarily follow that the course will be deductible if the employer pays for it and/or allows time off.

 

Interesting information as always @Terry_w . A wrinkle that might be coming in my near future:
I'm contemplating a postgrad degree from an overseas university with exorbitant fees. If I can get it approved as directly relating to my work (it is) could I redraw money from my PPOR into a loan split and use this to pay all course fees, flights etc. related to the course and then claim the interest as a tax deduction each year going forward until it is repaid? The alternative is paying for it out of money that sits in my offset account, so I thought it might be worthwhile seeing if this method would allow deductibility of a decent size of my PPOR loan.

 

Yes this could all be possible. But make sure you get specific advice.