How to avoid tax trouble when claiming education expenses

Did you know that certain self-education expenses may help you reduce tax? If so, you might want to make sure that your plans don’t go up in smoke if the ATO comes around to audit your expenses. Our taxation specialist, Alan Leung, explains how the ATO is likely to treat GP ‘self-education’ expenses and shares some case studies that illustrate some of the traps for GPs

Here is what Alan Leung shared with us:

For medical practitioners, there are generally two types of self-education expenses:

1. Seminars, conferences and continuing medical educations (CME) run by a range of organisations including Medical Colleges and other commercial educators.
2. Formal education/studies that might lead to awarding of a diploma or degree, which may or may not be related to the practitioner’s direct field of practice, often provided by the Colleges or a tertiary education institution.

The Australian Taxation Office (ATO) has detailed its view on the tax deductibility of self-education expenses in Taxation Ruling TR98/9. This ruling provides answers to some key questions:

Which educational expenses are deductible?

As a general rule, self-education expenses are deductible where they have a relevant connection to the taxpayer’s current income-earning activities

So, if you are a GP, and you attended a seminar, conference or CME course related to your GP practice then it would generally be tax deductible. The expenses that are tax deductible for doctors may include:

• the cost of the course
• materials (eg books, stationery)
• travel costs (even if it is inter-state or overseas)
• meals and accommodation while away from home etc.

Which expenses are not deductible?

No deduction is generally allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in a business or in the taxpayer’s current employment.

How has the ATO ruled for other medical practitioners?

The ATO ruled that a GP who took time off work to do some study was unable to claim the expenses as a tax deduction.

The following real-life examples illustrate how the ATO views different types of “self-education” expenses:

• A GP, who took some time off from practice, undertook some self-education courses to re-enter the medical profession. When the courses were undertaken, the GP was not employed, or had not entered into contract to supply medical services. The ATO has determined that the cost of the courses undertaken were not tax deductible as it was incurred too soon to be regarded as being incurred in gaining or producing assessable income.
• Another GP, employed at a hospital, was undertaking further specialist medical studies. The medical studies were supported by the GP’s employer and when completed, would allow her to perform a broader scope of medical procedures including general procedures for patients under a general anaesthetic as well as surgery. The ATO disallowed the deduction for the self-education expenses on the basis that the course of study was too general in terms of the GP’s current earning activity and thus does not have the necessary connection with her current income activity. Although supported by her employer, the employer did not require the GP to undertake the further study to continue her employment as a GP, nor was it mandatory for someone working in her field.
• A Resident Medical Officer (RMO), employed at a medical facility enrolled in the RACGP Fellowship program. Upon completion of the program, the RMO would be entitled as a GP to practise unsupervised in both the public and private system. The cost for the fellowship program was held by the ATO as deductible on the basis the course was relevant to the RMO’s current field of practice and could objectively lead to a higher income earning capacity.
• A medical professional and clinical lecturer, who has practised in both the public and private health systems, has had his own practice entity for a number of years. The medical professional also held adjunct lecturer positions at a number of tertiary education institutions which entails undertaking supervision of certain courses and teaching both undergraduate and post-graduate students in medicine and medical procedures. The medical professional commenced a medical course that contains a number of course units that directly relate to the deriving of his assessable income. The ATO held that the cost of the course was deductible on the basis that the course enables the practitioner enhance his skills and knowledge necessary to conduct the duties that he required to exercise in his income earning activity.

What can we learn from previous decisions by the ATO?

1. You need to be employed or earning income for such self-education expenses to be deductible.
2. The cost of CME / Seminars / Conferences directly related to your current field of practice is generally deductible.
3. For more formal courses, the subject of the self-education expenses must enable you to maintain or improve your current skill or knowledge, or must objectively lead to or likely to lead to an increase in your income from current income-earning activities in the future.
4. Self-education expenses will not be deductible (even if approved by your employer) if the study is intended to: enable you to get employment, obtain new employment, or open up a new income-earning activity.

Of course, each case must be looked at independently and little nuances may make a big difference on whether the self-education expense is deductible. If in doubt, consult your tax advisor.

Disclaimer: The comments above have been prepared for informational and general purposes only and are not intended to provide, and should be relied for tax, legal or financial, or accounting advice. You should consult your own tax, legal, financial or accounting advisors before engaging in any transaction or making a claim on a tax return.