A recent Federal Court decision in Antsis v The Commissioner of Taxation was an unexpected win for the taxpayer and a loss for the Tax Office.

The taxpayer was a full time student completing a teaching degree. During the 2005-06 tax year the taxpayer derived assessable income of $14,946 working as a part time sales assistant and $3,622 from Youth Allowance. The taxpayer claimed expenses of $1,170 consisting of travel, administration fees, stationery and depreciation of a computer.

In order to be eligible for the Youth Allowance the taxpayer was required to satisfy certain conditions, which were: (a) The person must be enrolled in a course at an educational institution; (b) must be studying at least 75% of the normal full time program, and (c) must be making progress towards completing the course. It was also mentioned that no income was derived from working as a teacher.

At the hearing, the applicant was represented by her father, Mr M Antsis, a legal practitioner. Mr Antsis argued, in essence, that the applicant had expended money on her education in order to ensure that she continued to make satisfactory progress towards completing her teaching course and remained eligible to receive assessable income in the form of Youth Allowance. Therefore, it was submitted, the applicant was entitled to a tax deduction pursuant to s 8-1 of the Income Tax Assessment Act.

The Commissioner of Taxation argued that:" - the expenditure incurred by the taxpayer was not "relevant and incidental to" the receipt of the Youth Allowance income; - the primary motive of the taxpayer in undertaking study activities was to gain employment in the future as a teacher; - the expenditure was incurred by the taxpayer at a "point too soon" to the derivation of assessable income as a qualified teacher and - as the youth allowance was a fixed payment from the Government, the expenditure incurred by the taxpayer could not be seen as being incurred with the prospect of increasing the income earning capacity of the taxpayer or to improve or maintain the taxpayer's skill and knowledge."

Following arguments by both sides, Justice Ryan, of the Full Federal Court, agreed that there was a nexus between the Youth Allowance income and the self-education expenditure:

"The outlay of fees to enrol in a course to qualify for Youth Allowance and incurring other expenses to satisfy the activity test and so preserve the qualification is not akin to the travelling expenses discussed in cases like Lunney. The claimed expenses in this case were not outlaid to put the applicant in a position to receive Youth Allowance, rather, they were incurred as a necessary incident of pursuing a particular course of study."

Later in the judgement, Justice Ryan went on to conclude:

"The derivation on income in the form of Youth Allowance is one of the alternative ways in which the occasion of the outgoing is to be found in what is productive of the assessable income."

In regard to the taxpayer's motivation to studying and incurring expenditure, the taxpayer conceded that the primary purpose for undertaking the course was to become a teacher. However. The taxpayer stated that while the primary purpose of undertaking study was not to gain Youth Allowance, the primary purpose of the self education expenditure was to meet the satisfactory progress requirement. Mr Antsis went on to argue that the connection of the expenditure to future teaching income does not deny the fact that the expenditure was also relevant to gaining the youth allowance, which itself represented a form of assessable income.

Following on from this Justice Ryan concluded that "The taxpayer's ultimate purpose or motive in undertaking their course was to acquire a qualification leading to future employment as a Teacher is irrelevant to the characterisation of the expenditure. It is sufficient to say that the expenditure was incurred as a necessary incident of deriving Youth Allowance.

Full facts of the case can be found on the ATO Website at ato.gov.au, Antsis v Federal Commissioner of Taxation 2009 ATC 20-098 or on my Blog.