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On 17 December 2010, the ATO published its Decision Impact Statement in relation to the High Court decision in FCT v Anstis [2010] HCA 40; 2010 ATC 20-221.The case concerned whether study expenses of a tertiary student were incurred under s 8-1 of ITAA 97 in gaining or producing Youth Allowance (YA) payments received under the Social Security Act (1991) (SSA), or were otherwise not allowable under s 8-1(2)(b) as outgoings of a private nature.

The High Court held that the YA was ordinary income that was gained or produced by the taxpayer's statutory entitlement to the payments under the SSA and the Social Security (Administration) Act 1999 . The study expenses were incurred in establishing and retaining her entitlement to the YA and were thus deductible under s 8-1. Further, the High Court held that the expenses were not of a private nature, as they did not lose their connection with the entitlement the taxpayer held as a recipient of YA simply because she might have been studying for reasons other than enjoying the entitlement to YA.

Whilst implicitly accepting the decision, the ATO says that "the Court's decision does not extend to meals expenses incurred by recipients of YA income, and for travelling expenses between a full-time student's home and place of study, whose essential character would still be of a private nature".

The ATO says that "(f)urther consideration is being given to whether the High Court's decision extends to students receiving other taxable education payments and to recipients of other payments made under the SSA. Of particular importance will be what a recipient was required to expend in establishing and retaining an entitlement to the receipts."

Finally, the ATO notes that "the views expressed in paragraphs 18, 19, 21 and 71 to 77 of Taxation Ruling TR 98/9 are contrary to the views expressed by the High Court in this case. The Ruling will be amended in the light of the guidance provided by the Court."

On 17 December 2010, the ATO also:

  • issued media release No 2010/44 entitled "ATO to help full-time students claim deductions for study expenses"
  • sent a broadcast message to tax agents on 17 December 2010, informing tax agents how it will be treating claims for tax deductions for clients with study expenses, and who have already lodged income tax returns for 2007, 2008, 2009 and 2010 income years.
  • published a document entitled "Full-time students with youth allowance can claim study expenses" on its website.

In media release No 2010/026, issued 17 December 2010, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, announced that the Government will not amend the tax law retrospectively to deny deductions against YA for prior years following the High Court decision in FCT v Anstis.

"The ATO will allow an automatic deduction of $550 from the 2006-07 to the 2009-10 income years for eligible taxpayers and potentially higher claims for those eligible taxpayers who can prove their expenses. The ATO estimates the average refund taxpayers will receive in their pocket will be $90 for each year and more if receipts can be provided," Mr Shorten said.

"The ATO will be working hard to ensure that affected individuals will receive their deductions. This is expected to result in around 460,000 tax refunds for affected individuals who received Youth Allowance while in full-time study and paid tax in any of the 2006-07 to 2009-10 financial years," Mr Shorten said.

In terms of deductibility against YA for the current and future income years, the media release stated that "this will be considered by the Government in the New Year".


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