Hundreds of thousands of youth allowance recipients will be able to claim their education costs as tax deductions as a result of a landmark High Court judgement delivered today in Canberra.

The Commissioner of Taxation had appealed to the High Court to overturn a Federal Court ruling, which allowed former Australian Catholic University student Symone Anstis to claim deductions for her study costs because they were incurred in gaining her youth-allowance income.

But the High Court today dismissed the appeal and ordered the Commissioner to pay Ms Anstis’ costs.

The ruling opens the way for hundreds of thousands of youth allowance recipients – and possibly other income-support recipients – to claim tax deductions for expenses they incur in qualifying for their payments.

In its advice to the incoming federal government in September, Treasury warned that if the High Court dismissed the Commissioner of Taxation appeal, there would be “significant budget implications”. The cost for the budget is not known but is likely to represent several million dollars.

Ms Anstis, a former Australian Catholic University student, was successful last year in her bid to claim $920 as self-education expenses after fighting the Taxation Office through a number of jurisdictions over three years.

While studying full-time to be a primary teacher, Ms Anstis worked as a part-time sales assistant for retail chain Katies, where she earned $14,946. She also received a youth allowance of $3622 during the 2006 income year.

She claimed education expenses including travel costs, supplies for children during teaching rounds, student administration fees and depreciation of her computer.

The Tax Office rejected the claim, so Ms Anstis and her father, Michael, who is a qualified solicitor but does not work as a lawyer, fought it all the way to the Federal Court, which handed down its ruling in Melbourne last November.

The full court of the Federal Court upheld an earlier decision that because the former student had to be enrolled in a full-time course of study to get her assessable income of youth allowance, any costs incurred in the course of studying should be deductible.

About 440,000 students receive youth allowance or Austudy. Many of these students would earn enough with the addition of part-time work to have a tax liability, according to Asssociate Professor Dale Boccabella from the University of NSW.

He said last year items including computer depreciation, stationery or textbooks could now be claimed as a deduction. In the past, the Taxation Office had made it clear it would not allow educational expenses to be claimed against welfare payments.

“The decision further complicates tax administration in the area of self-education expenses, an area that is already riddled with difficulties,” he said.