Edited version of your private ruling

Authorisation Number: 1052224508727

Date of advice: 7 March 2024

Ruling

Subject: Work related expenses - self-education expenses

Question 1

Can you claim a deduction for self-education expenses incurred in completing a Graduate Diploma of Legal Practice (GDLP) under section 8-1 of the Income Tax Assessment Act 1997?

Answer

No.

Question 2

If the whole amount of the GDLP is not deductible, is the cost of any of the individual course subjects of the GDLP deductible as a self-education expense under section 8-1 of the Income Tax Assessment Act 1997?

Answer

No. 

This ruling applies for the following periods:

Year ending 30 June 2024

Year ending 30 June 2025

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You are currently employed on a full-time basis in an administration role within the public service, whereby your employment role requires you to interpret and apply legislation, alongside other administrative tasks involving law interpretation, including provision of written advice to internal and external stakeholders.

You have been employed by your current employer for a few years, and in that time, you have gained considerable experience in the area of interpreting and applying the legislation relevant to your employment role.

In the 2023-24 financial year, you worked in a couple of different roles, where all the roles you undertook had a similar focus of interpreting and applying legislation.

You completed studies in law in mid-20YY (Bachelor of Law) and you commenced a Graduate Diploma of Legal Practice (GDLP) in mid-to-late 20YY, where the costs will be incurred through the 2023-24 and 2024-25 financial years.

The GDLP is financed through the FEE-HELP scheme (deferred payments scheme).

The GDLP

The GDLP serves as a compulsory pathway to admission to practice as a barrister and solicitor and is designed to enable law graduates to further develop and improve their legal skills, including advocacy skills, legal research skills and legal writing skills, developed in the Bachelor of Laws program.

The GDLP satisfies the practical legal training requirements that must be met for a person to be admitted by the relevant Supreme Court as a solicitor/barrister in the relevant State/Territory, and in this regard has replaced Articles of Clerkship.

Whilst the GDLP is a compulsory pathway to admission to practice as a barrister and solicitor, not every student who completes the GDLP seeks admission to practice.

The GDLP is comprised of 5 core subjects, 2 elective subjects, a certain number of hours of placement and continuing professional development (CPD) points.

You will be completing the following subjects as part of the GDLP:

Administrative Law Practice

The aim of the course is to provide an understanding of administrative law practice to enable a graduate entry level lawyer to perform the following tasks:

•         obtain information for clients under freedom of information legislation;

•         seek review of administrative decisions, including drafting written submissions, and

•         representing parties before courts and administrative tribunals.

The information covered in this course refers to State and Federal administrative law and practice and proceedings before both State and Federal courts and tribunals. This course is not designed as a refresher course in administrative law; rather it builds on academic knowledge in a practical setting.

Wills and Estates Practice

The aim of the course is to develop your understanding of wills and estate practice to enable you as an entry-level lawyer to give practical advice to a client, draft simple wills, administer deceased estates, and take action to solve problems about wills and estates.

Lawyer's Skills

This course covers the general knowledge and skills needed to become a competent legal practitioner. Skills in this course will be further developed throughout the course and on placement. Topics include negotiation, alternative dispute resolution and advocacy. As part of the advocacy component, you will make submission to, and obtain feedback from, senior members of the legal profession at the District Court.

Commercial and Corporate Practice

The aim of the course is to provide an understanding of commercial and corporate legal practice to enable you as an entry-level lawyer to:

•         conduct standard commercial transactions such as the sale and purchase of a small business;

•         understand the relevant risks associated with such a transaction for both parties;

•         set up simple business structures using entities such as companies, trusts and partnerships;

•         provide basic advice on finance and securities and on the obligations of companies and their officers; and

•         appreciate the type of advice needed to assess the revenue implications of standard commercial transactions.

This course is not designed as a refresher course in corporate law; rather it builds on academic knowledge in a practical setting. Topics include creating commercial structures, franchising, commercial transactions, loans and securities, administration, and taxation.

Property Law Practice

The aim of the course is to provide an understanding of property law to enable you as an entry-level lawyer to convey, lease and mortgage real property; and provide general advice on standard matters arising under local government, planning, environmental or other legislation relating to land use in the relevant State or Territory. Topics include transferring title, conveyancing, mortgages, and leases. The course is offered in partnership with South Australian practitioners and agencies.

Professional Obligations

The aim of the course is to provide an understanding of your professional obligations as a legal practitioner. An entry-level lawyer should act ethically and demonstrate professional responsibility and professional courtesy in all dealings with clients, the courts, the community, and other lawyers. You should have sufficient knowledge, skills, and values to maintain trust and general account records according to law and good practice, to the extent usually permitted and expected of an employed solicitor. The topics included are ethics and regulation, trusts, office accounting, legal costs, and risk management. The issues raised in this course are highly relevant for other GDLP courses and legal practice.

Work Experience Placement

This course requires students to complete two mandatory topics, Interviewing and Advising plus Legal Drafting in addition to engaging in 105 hours of legal work experience under the instruction and guidance of a 'Placement Supervisor'. During the period of work experience students will engage in activities including legal research, written communication and drafting legal documents, using Court Registries and Public Records Offices, negotiation, advocacy, and practice management.

Civil Litigation Practice

The aim of the course is to provide an understanding of civil litigation practice and enable you as an entry-level lawyer to conduct civil litigation in first instance matters in at least one State or Territory court of general jurisdiction, in a timely and cost-effective manner. This course is not designed as a refresher course in civil litigation rather it builds on academic knowledge in a practical setting. Topics include initiating a claim and pleadings, interlocutory applications, disclosure, gathering and presenting evidence and settlement and enforcement.

The GDLP is a full fee-paying course and is not Commonwealth supported.

You have not undertaken the GDLP for the purpose of being admitted as a legal practitioner. Rather, you have voluntarily undertaken the GDLP to further develop, maintain and improve your law interpretation officer skills, legal writing skills and legal research skills, to best equip you to provide succinct and accurate technical advice to internal clients in your current role.

You are not required to complete the GDLP for your current employment role.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

Can you claim a deduction for self-education expenses incurred in completing a Graduate Diploma of Legal Practice (GDLP) under section 8-1 of the Income Tax Assessment Act 1997?

Question 2

If the whole amount of the GDLP is not deductible, is the cost of any of the individual course subjects of the GDLP deductible as a self-education expense under section 8-1 of the Income Tax Assessment Act 1997?

Summary

The GDLP, along with each individual subject, are both predominantly focused on satisfying practical legal training requirements for admission to practice law, rather than specific knowledge of individual legal topics (as opposed to a Master of Tax degree for example). In addition, you are not required to complete the GDLP for your current employment role.

As such, even though the GDLP may broaden your knowledge and make you a better employee and better able to carry out your duties, there is no nexus established between the expense incurred in undertaking the GDLP and your current employment role. This expense is not in relation to an activity incidental and appropriate to your office.

The costs of completing the GDLP (along with any of each of the individual subjects) are not then incurred in earning your assessable income and therefore not deductible under section 8-1 of the ITAA 1997.

Detailed reasoning

Section 8-1 of the ITAA 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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

•         it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense

•         there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income, and

•         it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income.

Taxation Ruling TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual (TR 2024/3)discusses the circumstances under which self-education expenses are allowable as a deduction.

Paragraph 22 of TR 2024/3 provides that self-education expenses are incurred in gaining or producing your assessable income if either or both of the following apply:

•         Your income-earning activities are based on the exercise of a skill, or some specific knowledge and the self-education enables you to maintain or improve that skill or knowledge. (Principle 1)

•         The self-education objectively leads to, or is likely to lead to, an increase in your income from your current income-earning activities in the future. (Principle 2)

However, paragraph 23 of TR 2024/3 provides that Self-education expenses are not incurred in gaining or producing your assessable income if either of the following apply:

•         The self-education will enable you to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in your current employment). This includes studies relating to a particular profession, occupation, or field of employment in which you are not yet engaged. These expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161(Maddalena)). (Exclusion 1)

•         You are not undertaking income-earning activities to derive assessable income at the time you incurred the expenses. These expenses are not connected to any income-earning activity at the time they are incurred. (Exclusion 2)

To determine whether your self-education expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

In Case R60, 84 ATC 447 the Board of Review disallowed self-education expenses. The taxpayer was a public servant and their position required relevant experience or some legal training (which the taxpayer already had) but not legal qualifications as such. In the circumstances, the continuation of the taxpayer's legal studies could not be characterised as a relevant incident of or as part and parcel of his employment. While the legal studies were specified as an advantage for the position held by the taxpayer and the taxpayer's legal training was relied on by the branch he was in, if the studies were discontinued, the branch would not have reacted at all. The branch head saw the encouragement given to the taxpayer as part and parcel of normal staff development.

Case Z1

In Case Z1 92 ATC 101; AAT Case 7541 (1992) 22 ATR 3549 (Case Z1)

the taxpayer was a public service clerk who worked in Newcastle. They had completed an external course in legal studies conducted by Macquarie University in June 1987 but was not eligible for appointment as a solicitor unless they were admitted to practise. In order to do so they had to complete a six-month course at the College of Law and to be formally admitted to the Supreme Court of New South Wales.

Subsequently, the taxpayer undertook the pre-admission course at the College of Law and was admitted to the Supreme Court of New South Wales as a solicitor on 19 December 1987. They were later appointed as a solicitor with the Director of Public Prosecutions in Newcastle on 1 February 1988.

In the taxpayers 1987/88 return, they claimed the expenses incurred in relation to the pre- admission course and admission as a solicitor. The admission expenses included advertising and travelling costs and the practising certificate fee.

The Commissioner disallowed the claims and the taxpayer objected. The taxpayer submitted that the expenses were deductible as they had the one employer throughout. They submitted that moving from one area to another within the Public Service was not moving from one employment to a new employment and that the pre-admission course maintained and improved their skill in the field in which they were working.

The objection was disallowed by the Administrative Appeals Tribunal.

It was found that the admission expenses were of a capital nature and were therefore not deductible under sec 51(1). The expenses secured for the taxpayer a ''lasting advantage'' or ''enduring benefit''. The expenses were incurred in getting, not in doing, work as an employee. They came at a point too soon to be regarded as expenses incurred in gaining assessable income. The purpose of their admission was to qualify them to apply for a job as a solicitor.

It was also found that the pre-admission expenses were not deductible as they were not part and parcel of the taxpayer's employment. For expenses to be deductible they must be incurred in gaining assessable income and must be incidental and appropriate to the office. The taxpayer must show that there was an explicit or implicit condition that the expenses be incurred. At all times the taxpayer was employed in a position where qualifications as a solicitor were not necessary although the gaining of such qualifications were encouraged. The pre-admission course was pursued by the taxpayer of their own choice and for their own self-improvement.

It is important to note that in Case Z1, the pre-admission expenses were not described as capital expenditure, only the admission expenses were. Instead, the pre-admission expenses were not deductible as there was no nexus ). 

Following this, paragraph 29 of TR 2024/3 states that expenses incurred on improving skills and specific knowledge are not of a capital nature - they do not amount to the acquisition of something of an enduring nature.

In your case, even though the GDLP may broaden your knowledge and make you a better employee and better able to carry out your duties, as with the cases quoted above, this is not sufficient to enable this type of expenditure to be allowed as a deduction.

Whilst the GDLP may help you with your work in your current role, it is a specialised program which is designed to enable admission to practice as a lawyer giving you knowledge and qualifications different from what is required to carry out your employment duties. In addition, you are not required to have the requisite training or qualifications to be admitted as a lawyer to undertake your current role. As such, the GDLP course fees lacked the necessary nexus to establish they were incurred in gaining or producing your assessable income as a public servant. The expenses were not in relation to an activity incidental and appropriate to your office.

Deductibility of the cost of each individual subject where the whole of a self-education course is not deductible

Example 21 in TR 2024/3 covers the following example involving apportionment where individual subjects are deductible even where the whole of the course is not deductible:

Example 21 - cost of individual subject's deductible even where whole of course not deductible

92. James is an employee civil engineer. His duties include designing water and sewerage systems, determining the materials to be used for the systems, carrying out environmental impact studies and project management of the projects he works on. James decides to enrol in a MBA at a university to broaden his career opportunities, including possibly commencing his own firm in the future. The cost of each subject is identifiable from documentation he receives from the University.

93. The MBA course does not have a sufficient connection with James' current employment activities as a civil engineer, so James is not entitled to a deduction for the course fees. However, if James studies a subject on project management as part of his MBA qualification, that particular subject would have a sufficient connection to his current income-earning activities of managing projects. Therefore, James would be entitled to claim the cost of the project management subject as a deduction.

However, in your case, we consider that the predominant focus of each subject to be undertaken for the GDLP is the same as the focus of the whole of the GDLP, which is preparing and satisfying the practical legal training requirements to be eligible for admission as a practising lawyer, with each subject focusing upon a specific aspect of professional practice.

This might be contrasted to a Master of Tax course, which focuses upon the academic study of taxation law, and with no specific end goal of serving as a prerequisite for admission into any professional capacity. 

Application to your circumstances

Under principle 1 (as outlined in paragraph 22 of TR 2024/3), the GDLP and each individual subject are both predominantly focused on satisfying the practical legal training requirements for admission by the relevant body, rather than the knowledge of individual legal topics themselves. As such there is no nexus satisfied between the costs incurred in undertaking the GDLP and your current employment role.

As such, the costs of completing the GDLP (along with the cost of any the GDLP individual subjects) are not incurred in earning your assessable income and therefore you are not entitled to a deduction for any of these expenses under section 8-1 of the ITAA 1997.