Tax Office Has Last Laugh: Youth Allowance Deductions Denied


Does a taxpayer who receives an assessable Youth Allowance, entitled to claim expenses relating to the receipt of the income such as self-education expenses (travel, books, internet etc)?

The Australian Taxation Office (ATO) has always held the view that expenses incurred cannot be claimed against government allowances such as Youth Allowance.  For example, in the eyes of the Tax Office, a student who is in receipt of youth allowance would not be entitled to a deduction for self-education expenses.  However, the Tax Office's view on tax law matters is only an opinion.  It is up to the Courts to interpret and apply the law.

The decision laid down in the Full Federal Court on 4 September 2009 proved that the ATO are not always correct in their application of the law.  In FCT v Anstis [2009], a student was in receipt of Youth Allowance while undertaking a teaching degree.  At the end of the 2005/06 income year the student lodged her tax return claiming $920 in self education expenses against her Youth Allowance income - which the ATO later denied.  The Full Federal Court rejected the ATO's view and held that students could deduct self-education expenses incurred in obtaining Youth Allowance.

Despite the decision of the Full Federal Court, the ATO hadn't quite accepted the position and appealed the decision to the High Court.  Subsequently on 11 November 2010, the High Court unanimously dismissed the Commissioner's appeal and held that a taxpayer was entitled to a deduction under s 8-1 of the ITAA 1997 for expenses incurred in deriving income from receiving Youth Allowance.

In the 2011 budget the Government announced that it will amend tax law to prevent deductions being claimed against all government assistance payments, with affect from 1 July 2011.  The Government says the change is designed to maintain the integrity of the deduction system and provide certainty as to the scope of eligible deductions.

Students who receive youth allowance can claim substantiated deductions for education expenses in their 2010/11 income tax return but not from 1 July 2011.

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Last Updated: 18-May-2012 03:22 PM