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Anticipated work-related costs in the case of a semester abroad

In the context of higher education, for the purpose of deducting allowable expenses a distinction is made between undergraduate studies and second degrees. The costs for a course of study can generally be taken into consideration as anticipated work-related costs if vocational training has already been completed and the course of study is related to a future occupation. Which costs may be deducted as work-related costs is open to debate here – in particular, in relation to a semester abroad.

A semester abroad during a master’s degree course

The treatment of grants to students in the context of a semester abroad, in the case of a student who had completed a semester abroad in the USA during her master’s degree course in law, was the issue that the Munich tax court had to deal with in its ruling from 16.6.2020 (case reference: 5 K 1936/19). The student, S1, was granted an allowance for her master’s degree course, free of tax, by the German Academic Exchange Service (DAAD). Following her semester abroad, S1 worked as a German lawyer. The advanced training costs that S1 offset, against tax, as work-related expenses in connection with the semester abroad in the USA were recognised by the local tax office after deducting the travel subsidy, the tuition fee subsidy as well as the monthly grant allowance payments. The income tax assessment notices as well the notices of ascertainment of losses were accordingly issued for the relevant years, however, S1 applied to have the work-related costs recognised without the deduction of the grant allowance payments. 

The student’s claim was unsuccessful before the tax court. In principle, the costs in respect of her master’s degree course were anticipated work-related costs in relation to her income from employment. However, it was only possible to deduct those costs that actually were a financial burden for the taxpayer. In the opinion of the tax court, it was rightful and proper for the local tax office to deduct the tuition fees that had been assumed as well as the monthly grant allowance. Permission was granted to lodge an appeal and it is pending before the Federal Fiscal Court (case reference: VI R 34/20).

A semester abroad as a tax-privileged period of working away from home where this has been preceded by vocational training

In a similar case, a student, S2, who had successfully completed her vocational training, took up a course of study at a German university and, as stipulated in the rules and regulations of the study programme, spent one semester studying abroad at a partner university. During the period of this compulsory semester abroad, S2 applied for the extra accommodation costs and additional subsistence expenditure arising from this to be recognised as work-related costs. The student’s claim was part of a test case funded by the German Taxpayers’ Association.

In view of the fact that the rules and regulations of the study programme stipulated that one semester had to be spent studying abroad and, during this period, the students were nevertheless still enrolled at the German university, the BFH (Bundesfinanzhof, BFH) in its decision from 14.5.2020 (case reference: VI R 3/18) ruled in favour of S2. The semester abroad was a tax-privileged period of working away from home as the German university remained the primary workplace for tax purposes. This was a case of anticipated work-related costs that may be deducted even if two households do not have to be maintained and, thus, opens up the possibility of a loss carry-forward in subsequent calendar years.

Please note: It remains the case that the costs of initial vocational training or undergraduate study may not be deducted as work-related costs. The expenditure here can only be taken into account within the scope of a special expense deduction and will, at best, have a tax effect if, in the year when the expenses arise, the student has taxable income.

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