Should students be able to claim YA eligibility expenses?

As reported this morning, the full court of the Federal Court has rejected the ATO’s appeal against the decision we discussed in April to allow as tax deductions expenses that help make students eligible for Youth Allowance.

The respondent in this case, Symone Anstis, had claimed expenses for among other things her textbooks, depreciation on her computer, and supplies for children on her teaching rounds.

As Youth Allowance eligibility broadens over time this is likely to be an increasingly expensive decision. I don’t expect many continuing YA-dependent students will have paid any income tax they haven’t already claimed back via the low-income tax offset system (which has become more generous since Anstis made her claim).

However there will be many who receive YA for half a financial year as they complete their course, but then earn enough as full-time workers in the second half of the financial year to to have a tax liability for the whole financial year.

What in practice this decision will do is give a small financial advantage to ex-YA recipients compared to other graduates who relied entirely on their own earnings in their final semester. Particularly given the legacy of widespread rorting of the YA ‘independence’ test, this group should not receive another handout. There is a still a YA reform bill stalled in the Parliament. It should be amended to abolish these deductions.

22 Responses to “Should students be able to claim YA eligibility expenses?

  • 1
    Sinclair Davidson
    November 5th, 2009 16:58

    This is not a hand-out. This is the application of an old maxim of taxation. Expenses incured in the creation of a taxable asset or taxable income are deductable.

  • 2
    Krystian
    November 5th, 2009 18:23

    Whilst my knowledge of the case is quite limited, I think it’s quite a silly outcome – If somebody needs to wear a suit to work or take the train to get there in the morning, those expenses aren’t tax deductible if they are a salaried worker so I don’t see why the rules should be different in the case of Youth Allowance. I sometimes wonder why instead of Youth Allowance we can’t just have a HECs type income contingent loan for people who need support throughout university – It would provide money for people who need it but discourage those people who rort the system because they know they will have to pay it back if they earn a certain income. And it would offset the cost to the taxpayer of funding Youth Allowance purely through tax.

  • 3
    Andrew Norton
    November 5th, 2009 18:46

    Sinc – If the income is a hand-out, then surely any concession flowing from it is also a hand-out?

  • 4
    Sinclair Davidson
    November 5th, 2009 19:19

    You would think so. But the government was greedy, they defined it as assessable income and expenses incurred in ‘earning’ assessable income is deductable. Always has been, always should be.

  • 5
    Krystian
    November 5th, 2009 19:40

    “[E]xpenses incurred in ‘earning’ assessable income is deductable” – But that obviously excludes alot of such expenses in the case of salaried workers right? Like commuting costs etc.

  • 6
    Sinclair Davidson
    November 5th, 2009 20:36

    Yes. those are normally considered personal costs which are not deductable. You need to show some sort of link between the expense and earning income. So if you have to wear a uniform and specific clothing then that can be deducted, but not normal clothing. A few years ago some tradies were able to deduct travel to work because they needed to transport their toolsto different places of work (construction sites) and the court accepted that argument.

  • 7
    fxh
    November 5th, 2009 21:21

    To get right off topic – or perhaps not – a friend of mine works in an industry (health) where dependin g on the employer sometimes she has to wear uniforms other work places not allowed.

    Its much much cheaper for her to be at a uniform compulsary place in terms of clothing. She gets to claim it on tax, spend less in the first place plus get a uniform allowance.

    I run from 8 to 10 suits and theywear out. I can’t claim them – but if I wasn’t at a suit type workplace I’d only run two suits.

    Its alright for academics like sinclair – they only need 3 half clean T-shirts or skivvies and a pair of sandals

  • 8
    Krystian
    November 5th, 2009 21:29

    Any thoughts on a system where people pay back their youth allowance through income contingent loans? I see a clear justification for youth allowance in that when many people are studying at university they don’t always have the ability to support themselves either through family or part-time work. But if they then go on and become lawyers, doctors, accountants or other professionals, why shouldn’t they pay back what they received in youth allowance once their income gets to a certain level? I think that most of the arguments that support a HECS system for part-funding of higher education also apply in the case of youth allowance.

  • 9
    charles
    November 6th, 2009 06:10

    On another topic, debated before.

    Monash tops course popularity

    MONASH University has again topped the Victorian first preference popularity polls while rival Melbourne has suffered a steep fall.

    How long before Deakin ( another Dawkins university) overtakes also? Sandstone isn’t worth what it used to be.

  • 10
    Andrew Norton
    November 6th, 2009 06:28

    Krystian – The problem is that in practice there has been a serious adverse selection issue. There used to be a scheme where you could sacrifice part of your YA for a larger loan repaid on an income-contingent basis. But the people who did this were disproportionately those who were not likely to ever repay anyway.

    If it could be done on an economic basis, I’d be in favour. But until then my stance would be that it is likely to be very expensive (even those who do repay would get large interest subsidies) and the evidence that this is a major problem isn’t strong enough.

  • 11
    Andrew Norton
    November 6th, 2009 06:56

    Charles – The historical pattern in Victoria has been that Monash, Melbourne and RMIT all receive similar numbers of first preference applications. Clearly this is changing – Melbourne is shrinking its undergraduate offerings (all the losses come from not offering courses offered last year), Monash has said it is going to expand via its Berwick campus, and RMIT looks like it is going to stay roughly at its current size. As demand is influenced by supply (especially as expanding all other things being equal pushes down ENTER scores, so making more students capable of getting in) this means that Monash will be well ahead in terms of application numbers.

    It’s an interesting strategy for Monash, because Group of Eight universities are typically prestige-maximisers, but they are deliberately taking a path that will lower their median ENTER.

  • 12
    Sinclair Davidson
    November 6th, 2009 07:25

    Its alright for academics like sinclair – they only need 3 half clean T-shirts or skivvies and a pair of sandals

    LoL.
    I’m in the Business College, not Arts. Slacks, dark blue business shirt (I have several), tweed jacket (no arm patches yet – you have to earn those) and a tie on those days I have meetings. In winter I have several grey vests that I alternate over the dark blue shirts.
    I’m not suggesting the (personal expenses) tax rule is fair, but that is what it is.

  • 13
    Son of the Ratpack
    November 6th, 2009 12:55

    “I’m not suggesting the (personal expenses) tax rule is fair, but that is what it is.”

    It’s arbitrary and ad hoc, which is why it would be better to abolish all personal expenses, and give everyone a cut in their tax rates.

  • 14
    Sinclair Davidson
    November 6th, 2009 13:59

    It’s not that arbitrary. I have a paper coming out in the December Agenda looking at work-related expense deductions. It is a later version of this; low and middle income earners are the people who most use this deduction and given the small amount of tax they actually pay in the grand scheme of things, I’m not sure that we’d get much of a tax cut if it was abolished. It would certainly be expensive to replace as a standard deduction.

  • 15
    Son of the Ratpack
    November 6th, 2009 15:58

    It is very arbitrary.

    Uniforms are deductible, Suits are generally not, but suits with the company logo are deductible, provided the logo is sufficiently big and prominent. See the 200 relevant pages of the Income Tax Assessment Act and the case law (all 57 cases).

    As you said, travel by tradies is deductible because they carry their tools. What about the travel by the lawyer who carries his briefcase between home and work? No. He could have left his brief case at the office overnight. He didn’t have to carry it. Yeah, but what if he took some work home the night before and carried it in his brief case? Still not deductible. Yeah, but tradies go to different sites, not the one office. Hmmm, good point. The lawyer should arrange meetings first thing in the morning at his clients’ offices. Sorry, travel still not deductible.

  • 16
    Sinclair Davidson
    November 6th, 2009 16:39

    SotR, my boy, if lawyers can’t organise a tax-deduction what is the world coming to? 🙂

  • 17
    Nathan
    November 8th, 2009 01:44

    Hey Andrew,

    I’m doing some research on political identity. I’d love to see your survey questions on this topic but your survey was closed. Can you email me them? Feel free to ask me any questions as well. Thanks,
    -Nathan Maton

  • 18
    Krystian
    November 8th, 2009 03:49

    Andrew – I think there is an economic argument for it, similar to the arguments behind HECS. Although it would depend on the relative private vs public returns on higher education.

  • 19
    Francis Xavier Holden
    November 8th, 2009 17:48

    Sinclair – obviously you are the very model of a well dressed aca – those tweed jackets should be bequeathed to institutions by old dead academics. With the suede elbow patches ripped off so that young pseudes can’t acquire stripes without hardship.

    Sure the current work related expenses are claimed by low income people but thats only an accident.

    A nurse at one facility that requires a uniform will get an allowance plus tax deductions and mostly wearing a uniform is cheaper than wearing “street” clothes.

    A nurse at another facility doing exactly the same work but with no uniform requirement will not get an allowance or a tax deduction.

    Where the logic in that – if they are meant for low income earners then target the deduction at them.

  • 20
    Francis Xavier Holden
    November 8th, 2009 17:50

    I’ll bet airline pilots claim the uniform allowance. And multi million $$ sports “stars” claim their reefer jackets and pants as do sports commentators on tv.

  • 21
    derrida derider
    November 10th, 2009 13:57

    the legacy of widespread rorting of the YA ‘independence’ test

    As I’ve said previously such “rorting” is the only way some people can get an education. If you create a system so unfair that people are forced to look for loopholes then you shouldn’t blame the “rorters” but the policy designers.

    In this case the problem is the obession with tight targeting of welfare – the downsides of this approach just never seem to occur to governments, or indeed to their rightwing critics.

  • 22
    Andrew Norton
    November 10th, 2009 15:17

    DD – Some people, but not lots of people who do in fact get YA despite living in affluence. The government’s changes are sensible in this regard, increasing the number of people who can get YA via the parental income test while tightening the independence test.

    The problems of tight targeting won’t be serious in the new YA system. The amount students can earn before affecting their benefits will also be increased (though in my view wrongly delayed to fund this year’s YA gap year students).