Deductions against Government Assistance Payments

You may have heard about the recent Anstis decision held by the High Court of Australia where a student was able to claim study expenses against her government assistance payout.

Please review the circumstances for the 2011 financial year below and note the change made by the recently handed down Budget.

Below is an extract from the ATO’s broadcast to Tax Agents:

Austudy and ABSTUDY recipients

In the same way we did for Youth allowance recipients who studied, we are writing to those of you who had previously lodged income tax returns for eligible Austudy and ABSTUDY clients. We are advising you that we will amend their tax assessments for the 2007, 2008, 2009 and 2010 income tax years to include a tax deduction of $550 for study expenses for each year they are eligible.

Deductions can be claimed for the 2011 year for study expenses incurred by Austudy, ABSTUDY and Youth allowance recipients.

Newstart allowance recipients and Youth allowance job seekers

If you have clients who are Newstart allowance recipients or Youth allowance job seekers, they may be entitled to a deduction for expenses they incur in actively seeking paid work. Eligible taxpayers are those who:

  • received Newstart allowance or Youth allowance to seek paid work during the year
  • have included the allowance as income in their tax return
  • incurred expenses during the year seeking paid work (this includes costs they incurred in meeting the requirements of an Employment Pathway Plan), and
  • have written evidence to support their claim for the expenses.

Eligible taxpayers can claim deductions for the 2011 year when they lodge their tax return.

Eligible taxpayers can also request amendments for the 2007, 2008, 2009 and/or 2010 years.

The ATO will be monitoring the claims made throughout the 2011 year and may seek additional evidence as a result.

Budget Announcement
In the 2011 Budget, the Government announced its intention to change the law to prevent deductions being claimed against all government assistance payments from 1 July 2011. This includes claims for:

  • study expenses by those who receive Youth allowance, Austudy and ABSTUDY
  • job search expenses by Newstart allowance recipients and Youth allowance job seekers.

At this time, the legislation has not been introduced into Parliament. Something to keep in mind for you or your children receiving government assistance payments!