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Education, training deduction claims to widen under proposed change

Taxpayers might soon be able to claim deductions for education and training outside their chosen careers, as the government mulls changes to the current tax system.

Tax&Compliance Jotham Lian 19 January 2021
— 2 minute read

The changes, announced in last year’s federal budget, are intended to encourage individuals to retrain and reskill to support their future employment as an ever-evolving labour market forces some to have multiple careers over their lifetime.

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While taxpayers can currently claim a deduction for self-education expenses when the education activity is directly connected to the income arising from an individual’s current employment activities, the Treasury is now consulting on changes to open claims up to training courses that could enhance an individual’s employment prospects outside their current career.

The Institute of Public Accountants chief executive Andrew Conway has given his whole-hearted support for the proposal, noting that the current tax system has failed to recognise an ever-changing labour market.

“Many individuals will have multiple careers over their lifetime which indicates a strong need for continued upgrading of skills,” Mr Conway said.

“Our current tax settings do not support or encourage the retraining and reskilling once an individual has commenced earning an income in their chosen field.

“The economy has been savaged by the financial impacts of COVID and we are supportive of initiatives that are aimed at improving our productive capacity.

“However, along with COVID, our labour supply market is facing the issues of an ageing workforce, the loss of skilled migration and many business closures due to the pandemic. All of which require the need for individuals to reskill to meet new opportunities.”

Treasury’s proposed plan

The Treasury has since ruled out courses that are not clearly linked to income-earning activities, such as lifestyle or personal development courses, and is leaning towards limiting deductions to nationally recognised training and industry training packages delivered by education and training providers registered with TEQSA, ASQA, VRQA and TAC.

It has also proposed to limit deductions to courses in areas of expected jobs growth, as determined by the National Skills Council (NSC).

“It is important to understand the changing labour market needs, the skills requirements of current and future jobs, the structural shifts that will occur and the skilling and retraining needed to get people to gain and sustain employment,” the Treasury said.

“A new deduction could target assistance to areas of current labour demand or forecast job growth.”

The Treasury also believes full substantiation will be required to ensure the new deductions are not being abused.

“This includes keeping detailed records and receipts, such as details of the training provider and course,” it said.

“This ensures the deduction could be effectively administered, protect against revenue loss and help mitigate compliance concerns.”

Mr Conway believes the cost in introducing such a deduction would be offset by the additional productive capacity added to the economy through a more skilled and flexible workforce. 

He also believes an additional integrity measure should be introduced to reduce the risk of the deduction being misused.

“We appreciate that tax concessions cost money and, therefore, we propose that if this initiative is implemented, that the risk be shared with the individual who proposes to take advantage of the concession,” Mr Conway said.

“Quarantining half the upfront deduction until the individual earns income from an activity associated with the retraining is an appropriate model to ensure that taxpayers do not wear the entire cost of education outlay in cases where the retraining does not result in the furtherance of a new activity.

“In areas of skill shortages (to be defined), we are not opposed to the concept of full deductibility. Both these measures will ensure the new initiative achieves its policy intention through better targeting of the concession.

“We urge the government to move on this proposal as quickly as possible, considering our labour market shortages and the loss of genuine productivity so greatly needed to lift the economy.”

The Treasury’s consultation runs to 22 January and can be accessed here.

Education, training deduction claims to widen under proposed change
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Jotham Lian

Jotham Lian

Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.

Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.

You can email Jotham at: This email address is being protected from spambots. You need JavaScript enabled to view it. 

Tax&Compliance