One Nation senator's attempt to deduct the full cost of a masters degree from a US university almost 25 years ago was thwarted by the tax commissioner.

Malcolm Roberts, who was elected on Pauline Hanson's party ticket in Queensland in July, spent 21 months studying a Masters of Business Administration at the University of Chicago between 1988 and 1990.

His MBA studies followed his retrenchment from an underground mine manager's job at Coal and Allied and discussions with a potential new employer, Arco Coal Australia.

Arco told him an MBA from a reputable university would be well regarded, but the company did not guarantee him a new job.

Senator Roberts claimed the $24,260 tuition fees, $5368 in accommodation and other expenses on his tax as "work-related self-education" in his 1989 income tax return - totalling $32,502.

The claim was whittled down to $29,212 when Senator Roberts couldn't substantiate some of smaller items such as taxis, photocopying and telephone calls, but it was still rejected by the tax office.

Senator Roberts took the matter to the Administrative Appeals Tribunal which, in ruling in his favour, found it had helped him progress from mining engineer to mine manager and take up a new management role with the Gordonstone coal mine in central Queensland in 1990.

However, the tax commissioner took the AAT decision to the Federal Court and had it overturned.

Justice Richard Cooper found in the 1992 Federal Court case the AAT had erred in law by allowing the deduction.

"They are moneys which were spent to obtain a new employment, albeit one in a better position and on higher wages," the judgment read.

"Being the cost to an employee of obtaining his employment, they do not form an outgoing incurred in the course of earning the wages payable in the employment."

One Nation's tax policy calls for "fairness and honesty" in the tax system.

A spokesperson for Senator Roberts said:

“This is as honest and fair as it gets. If you have a beef with the ATO, you appeal their decision. Senator Roberts won that appeal, but the ATO took matters further.

“What worries us is that the ATO made in the case, and many thousands of others, arbitrary decisions adverse to every day Australians. That must stop.”