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  • Ruling examples

    Example 1 – draft ruling on deductibility of self-education expenses

    Subject

    Self-education expenses

    Question

    Will the self-education expenses be an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997?

    Answer

    Yes.

    Relevant facts and circumstances

    Suggested objective facts to include:

    • details of the course being undertaken
    • whether you are employed, or receiving government assistance to study
    • if employed, full description of employment duties and status
    • purpose of the course – and your future intentions
    • a description of the expense incurred or to be incurred.

    Assumptions

    Nil.

    Relevant legislative provisions

    Income Tax Assessment Act 1997 section 8-1.

    Reasons for decision

    Summary

    The expenses you incur in relation to your study are deductible as they maintain or increase the specific knowledge required in your current position and to carry out your duties more effectively.

    Detailed reasoning

    Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

    Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

    Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, a deduction is allowable.

    However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayers current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161 and paragraphs 15, and 48-62 of TR 98/9).

    In your situation, the course of study can be objectively seen as being undertaken in order to maintain or increase the specific knowledge required in your current position and to carry out your duties more effectively. The study has not been undertaken at a point too soon to be regarded as being incurred in respect of your current income earning activities and is not seen as opening a new discrete income earning activity. Accordingly you are entitled to a deduction for the expenses you incur in respect of the study.

      Last modified: 23 Oct 2018QC 54118