First degree: correctly deduct accommodation costs?
Expenses for a first degree after completing vocational training are deductible as - previously incurred - income-related expenses without limit. In contrast, the costs of a first degree after leaving school are only deductible as special expenses up to 6.000 Euro.
Since children in higher education are often not financially well-off, parents cover various expenses for their education. Landlords often prefer to sign the rental contract for student accommodation with the parents of the student. The question is whether the child can claim the rent and the estate agent's fee as their income-related expenses or special expenses for their first degree, even though these were paid by the parents. Recently, the Lower Saxony Finance Court dealt with the case. The rental contract for the student accommodation was in the father's name. The father covered the accommodation costs in full. According to the judges, a distinction must be made between the estate agent's fee and the ongoing rental payments. While the estate agent's fee is recognised as the child's income-related expenses, the rental payments are rejected as income-related expenses (FG Niedersachsen, 25.02.2016, 1 K 169/15).
- The estate agent's fee is a service provided by the parents through an "abbreviated contract route". The parents purchase items in their own name for the child, place orders, conclude contracts and make the required payments themselves. Since the father rented the flat for the first degree, the payment of the estate agent's fee is made in the interest of the child and their studies. The child may claim the parents' payment as their income-related expenses.
- The situation is different for ongoing rental payments. Although these are also made through the "abbreviated contract route", there is an exception here. The deduction of income-related expenses is not permitted if the payments are made within the framework of long-term debt relationships. In these cases, the third party always pays on their own account and only grants the beneficiary a right of use. A rental agreement is such a long-term debt relationship. In this case, the tax authorities refuse to recognise third-party expenses for tax purposes (BMF letter dated 07.07.2008, BStBl. 2008 I p. 717). Rental payments for the son are therefore not deductible if the father signed the rental contract and pays the rent.
Lohnsteuer kompakt
The question of whether the deductibility of rents and estate agent's fees can be assessed differently in the case of the abbreviated contract route has not yet been decided by the highest court.
Until a ruling by the highest court, it is advisable for the rental contract to be in the student's name and for the parents to be included in the contract only as guarantors and not as tenants. In this case, the parents' rental payments to the landlord are made via the "abbreviated payment route".
Furthermore, you can also make payments to the child, and the child could then pay the rent to the landlord (so-called cash gift).
Recently, the Federal Constitutional Court ruled that the current legal regulation is constitutional. The fact that expenses for initial vocational training or a first degree cannot be deducted as income-related expenses, but only as special expenses, does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.01.2020). Therefore, questions regarding the deduction of costs in connection with studies will often only arise in the case of a second or postgraduate degree or studies after completing vocational training.
(2021): First degree: correctly deduct accommodation costs?
What can be deducted in a dual study programme?
As part of the dual study programme, students complete several practical study semesters in companies outside the university. The student has concluded a training contract with such a company, which includes regulations on the obligations of the company and the student and even provides for a monthly training allowance.
(1) Until 2013, neither the university nor the training company was considered a "regular workplace". This is because an educational measure is always temporary and not permanent. Therefore, travel to the company can also be deducted at the actual amount or with the business travel allowance of 30 cents per kilometre travelled, and a meal allowance of 6 euros can be claimed for absences of at least 8 hours (BFH ruling of 16.1.2013, VI R 14/12).
(2) Since 2014, in the case of full-time study, the educational institution - i.e. the university or college - is legally declared as the "first place of work" - but only if the training takes place outside an employment relationship (Section 9 (4) sentence 8 EStG). However, dual study programmes always take place within the framework of an employment or training relationship. So what applies?
The OFD Niedersachsen currently explains how training in the dual system is to be assessed for tax purposes and what can be deducted as income-related expenses: Trainees are assigned to a specific company through their training contract or civil service trainees through their employment notice. This assignment covers the entire training period and thus the entire duration of the employment relationship (OFD Niedersachsen of 2.8.2016, S 2353-133-St 215).
- As this is a permanent assignment, the training company is the first place of work. Therefore, travel from home to there can only be deducted with the commuting allowance of 30 cents per kilometre, meal allowances are not taken into account.
- If trainees or civil service trainees are temporarily seconded from their first place of work to another company, this is considered a business trip. Travel can be claimed with the business travel allowance of 30 cents per kilometre travelled, as well as meal allowances and accommodation costs.
- Travel between home and the training location as part of working groups is also considered a business trip. Travel expenses can also be claimed according to travel expense principles.
- If trainees or civil service trainees are temporarily seconded from their first place of work to attend courses at an educational institution, this is also considered a business trip.
- For business trips, meal allowances are limited to the first three months. However, it should be noted that the three-month period starts anew if there is an interruption of more than four weeks. This is particularly important for the course period.
Tip
Because a training contract is concluded with a company as part of the dual study programme or dual system, this is a training employment relationship. Therefore, training costs - even if it is a first degree - are not limited to 6,000 Euro as special expenses, but are deductible as income-related expenses without limit.
(2021): What can be deducted in a dual study programme?
Reimbursement of training costs are deductible as income-related expenses
The Bundeswehr allows temporary-career soldiers to study at university during their service at the Federal Government's expense, usually human medicine. The soldiers receive a salary but must commit to serving in the Bundeswehr for at least 10 years as medical officers.
In many cases, however, soldiers leave the Bundeswehr after a short time to pursue a civilian career. The Federal Government then demands repayment of the training allowance received during their studies, which amounts to approximately 1,800 Euro per month, as well as subsequent specialist training costs.
To settle the invariably six-figure repayment sums, the Federal Government grants deferrals and instalment payments but charges interest of 4 percent on the deferred amounts. Recently, the Federal Administrative Court ruled in a number of judgments that temporary-career soldiers who have completed a university degree at the Federal Government's expense and leave the Bundeswehr before the end of their commitment period must reimburse their training costs to the Federal Government (BVerwG judgments of 12.4.2017, 2 C 16.16; 2 C 5.16; 2 C 8.16 et al.).
- According to the BVerwG, the Federal Government is fundamentally entitled to reclaim the training allowance granted during the studies and the subsequent specialist training costs. The legally stipulated repayment obligation does not violate the former soldier's property rights but represents an appropriate balance for the legitimate but disappointed expectations of the Federal Government that the soldier would make the specialist knowledge and skills acquired at the Federal Government's expense available to it until the end of the commitment period.
- However, two corrections must be made to the Bundeswehr's calculation practice:
- Periods during which licensed medical officers perform full service as doctors in a Bundeswehr hospital must lead to a reduction in the repayment obligation (so-called service quota). This also applies if they receive specialist training during this time.
- The imposition of interest on the deferred amounts is unlawful. There is no legal basis for this.
Lohnsteuer kompakt
Recently, it was reported in the press that a former medical officer must repay 57,000 Euro in study costs to the Bundeswehr (Spiegel online of 14.1.2020). The individual had committed to 17 years of service with the Bundeswehr, was able to study medicine at the Bundeswehr's expense with a substantial training allowance, became an officer, and was even allowed to undergo clinical training as a specialist in anaesthesia after his studies. He then served as an army doctor in crisis areas for several years, including Afghanistan. He later refused military service, was discharged early from the Bundeswehr, and is now required to repay part of his study costs.
Recently, the Düsseldorf Administrative Court ruled that the Bundeswehr's repayment claim is justified and that the former medical officer must repay 57,000 Euro to the Bundeswehr. The judges only agreed with the claimant on one point: the Bundeswehr must grant him a deferral or instalment payment of the sum (VerwG judgment of 14.1.2020, 10 K 15016/16).
Lohnsteuer kompakt
The repaid training costs are deductible as income-related expenses because they are objectively related to the profession. The expenses are economically caused by both the previous and the new employment relationship. On the one hand, they are inextricably linked to the previous employment, as the payment would not be conceivable without the agreement with the former employer.
On the other hand, the expenses also find their economic cause in the new employment relationship, as the repayment obligation would not have arisen without the new contract (BFH judgment of 7.12.2005, I R 34/05).
Similar to an agreed repayment of training costs in the event of a breach of contract is the agreement of a contractual penalty. The contractual penalty may become due if the employment is terminated in breach of contract before the end of a commitment period. Payments to fulfil a contractual penalty are fully deductible as income-related expenses or business expenses without any ifs or buts. Where the deduction is made is actually irrelevant.
On the one hand, the contractual penalty may be related to the subsequent self-employed work because it enabled this work in the first place. On the other hand, it may also be primarily caused by the fact that the former non-self-employed work was not continued in accordance with the contract. In this case, the payment would be considered as subsequent income-related expenses (BFH judgment of 22.6.2006, BStBl. 2007 II p. 4).
(2021): Reimbursement of training costs are deductible as income-related expenses
Which training costs can I deduct?
You can deduct all costs incurred in connection with your training as training expenses. These include in particular participation fees and learning materials.
You can deduct the following as participation fees:
- School fees,
- Fees,
- Course,
- Course, seminar fees,
- Admission and examination fees.
You can deduct these fees in full. If you purchase items for the training, you can deduct them as work-related items. These include, for example:
- Specialist literature,
- Stationery,
- Briefcase,
- Computer,
- Desk,
- Desk lamp,
- Bookshelf,
- Dictation machine,
- Work clothing (lab coat).
Please note that you may only use these learning materials as part of the training; private use is not permitted.
You can also deduct your travel expenses. You can apply the travel allowance (0.30 Euro per kilometre driven) or the actual car costs.
You can also declare meal allowances and overnight accommodation costs in your tax return.
In addition, you can declare so-called incidental travel expenses in your tax return. These include, for example:
- Parking fees,
- Costs for luggage storage,
- Costs of a car accident on a journey related to the training,
- but also the material costs for a master craftsman's piece or journeyman's piece in the trade, or
- Interest on loans for financing the training.
Tipp
In our opinion, the new home office allowance of 5 Euro per day (max. 600 Euro), granted in 2020 and 2021, is also available to those who are studying, training or furthering their education and are currently learning more at their home PC than in lectures or face-to-face classes.
(2021): Which training costs can I deduct?
What can I deduct for full-time training or education?
Costs for training or further education can be deductible as income-related expenses, business expenses, or special expenses. Expenses for initial vocational training outside of an employment training relationship and for a first degree are - at least according to current legal status - only deductible as special expenses up to a limit of 6,000 Euro.
In other cases, expenses can be deducted as income-related expenses or as preliminary income-related expenses without limit. This also applies to new vocational training after completing an initial training, as well as vocational training within an employment training relationship, e.g. apprenticeship, traineeship. Important items include travel, meals, accommodation, and incidental travel expenses.
If you, as an employee, participate in a training measure outside your company as part of your employment, it is considered an off-site activity. You can claim your expenses according to travel cost principles - i.e. travel costs with the business travel allowance, meal allowances, incidental travel expenses, and possibly accommodation costs - as income-related expenses.
This applies to people who continue their education or training in the evenings and at weekends alongside their job. This has been the case so far and continues to apply.
However, the situation is different if you undertake a full-time training measure or full-time study outside your employment:
(1) Until 2013, the educational institution does not become a "regular workplace" if an employee undertakes a long-term training measure and visits the educational institution for over four years. This is also because it is not a company facility of the employer. Travel costs are therefore deductible according to the rules for off-site activities with the business travel allowance and meal allowances (BFH rulings of 09.02.2012, VI R 42/11 and VI R 44/10).
(2) However, since 2014, it is stipulated in the law that for full-time education, the educational institution is the "first place of work" (even though it is not an employer's facility). This means: Journeys are only deductible with the distance allowance, and meal allowances are not considered. This applies both to further training for unlimited income-related expense deduction and to training for limited special expense deduction.
When is a full-time training measure applicable?
This is the case if it is vocational training and you are not engaged in any employment alongside it. However, the following are permissible:
- employment up to 20 hours per week,
- marginal employment (mini-job), or
- short-term employment (temporary job).
(2021): What can I deduct for full-time training or education?
First degree: What are the chances of a full deduction of income-related expenses?
Expenses for the first vocational training and for the first degree as initial training, which are not completed as part of a training employment relationship (e.g. apprenticeship), are currently only deductible as special expenses up to a limit of 6.000 Euro, while the costs for any educational measures after completing vocational training, including a first degree after an apprenticeship, can be fully considered as business expenses (§ 4 para. 9, § 9 para. 6, § 10 para. 1 no. 7 and § 12 no. 5 EStG).
The Federal Constitutional Court has now ruled: The current legal regulation is constitutional. The fact that expenses for initial vocational training or for a first degree as initial training cannot be deducted as business expenses does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020).
(2021): First degree: What are the chances of a full deduction of income-related expenses?
How are study costs recognised?
Expenses for a first degree after completing secondary education are currently only deductible as special expenses up to a limit of 6,000 Euro, whereas the costs for a second degree or a first degree following vocational training can be fully considered as business expenses.
The deduction for special expenses only reduces tax if there are other incomes - including those of the spouse - from which the expenses can be deducted. If this is not the case, the supposed tax benefit is ineffective. Any training costs that cannot be offset against income in the year of payment are lost for tax purposes.
The Federal Constitutional Court has declared the legal regulation to be constitutional. The fact that expenses for initial vocational training or a first degree cannot be deducted as business expenses does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020).
