Edited version of private advice

Authorisation Number: 1052226256733

Date of advice: 7 March 2024

Ruling

Subject: Deductions - Self education expenses

Question 1

Are your self-education expenses, detailed in Group A, incurred in studying a Master of Psychology (Clinical Psychology) allowable deductions under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No.

Question 2

Are your self-education expenses, detailed in Group B, incurred in studying a Master of Psychology (Clinical Psychology) allowable deductions under section 8-1 of the ITAA 1997?

Answer 2

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You commenced your employment with Employer A in XX 20XX, part time in Role A.

You provided a position description for another role which refers to Role A. This position description is very broad.

You supplied a letter dated X XX 20XX from your former manager, explaining what your Role A involved.

On X XX 20XX you started working in Role B with the same employer and worked part time.

You provided a position description for Role B including the key activities.

You supplied a letter dated XX XX 20XX from your current manager, explaining what your Role B involves.

You were studying a Master of Psychology (Clinical Psychology) at University A (the Course) in the income year ended 30 June 20XX.

You have been completing the Course since 20XX.

You will continue studying the Course in the income years ending 30 June 20XX and 30 June 20XX.

You will continue to work in Role B for Employer A while completing the Course.

You provided a unit outline and an explanation as to how each unit is connected to your income earning activities. The information is grouped under Group A and Group B.

University A's website includes the following information about the Course:

The Master's Course provides high-level training in psychopathology, assessment, and therapeutic interventions for adults and children with clinical disorders. Our training has a specific focus assessing conditions such as anxiety disorder, clinical depression, schizophrenia, eating and personality disorders, trauma, alcohol dependence, childhood disorders and psychogeriatric conditions.

Graduates of the program will be eligible for:

•         Membership of the Australian Psychological Society (APS)

•         General registration as a psychologist with the Psychology Board of Australia (PsyBA)

•         Clinical Psychology area of practice endorsement (after an additional 24 months of approved supervised full-time equivalent practice with PsyBA-approved supervisor)

University A's website provides details about the units studied as part of the Course.

Your tuition fees are paid under FEE-HELP as you are a full fee-paying student.

You will not be reimbursed or receive an allowance by anyone for expenses incurring in relation to your study.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Issue - Deductions - Self-Education Expenses

Question 1

Are your self-education expenses, detailed in Group A, incurred in studying a Master of Psychology (Clinical Psychology) allowable deductions under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

No.

Question 2

Are your self-education expenses, detailed in Group B, incurred in studying a Master of Psychology (Clinical Psychology) allowable deductions under section 8-1 of the ITAA 1997?

Summary

Yes.

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings 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.

The deductibility of self-education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for your university course fees, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable income.

Taxation Ruling TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual discusses circumstances in which self-education expenses are allowable. 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).

It is well established that the words 'in gaining or producing assessable income' are to be understood to mean 'in the course of' gaining or producing assessable income and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income (paragraph 14 of TR 2024/3).

This means there must be a relationship, or close connection, between the expenditure and what it is that you do to produce your assessable income, or if none is produced, would be expected to produce your assessable income (paragraph 15 of TR 2024/3).

It is not enough to show only that there is some perceived connection, general link or causal connection between the expenditure and the production of your income. The expenditure must have a close connection to the performance of the duties and activities through which you earn your income (paragraph 16 of TR 2024/3).

The question of what produces your assessable income should not be approached narrowly. It requires consideration of the tasks to be performed and the duties to be observed (referred to as your income-earning activities) (paragraph 17 of TR 2024/3).

The reason or motive for undertaking the self-education is not determinative of whether the expense is incurred in gaining or producing your assessable income: In many, if not most, cases the objective relationship between an expenditure and that which is productive of income will provide a sufficient answer to the inquiry posed by [section 8-1] (paragraph 18 of TR 2024/3).

A partial deduction may be appropriate where only part of your expense is for self-education connected with your income-earning activities or where only part of the self-education is relevant to your current income-earning activities (paragraph 21 of TR 2024/3).

Paragraph 22 of TR 2024/3 provides: 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)

Further, paragraph 23 of TR 2024/3 provides: 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. (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)

The principles and exclusions outlined in paragraphs 22 and 23 of this Ruling are not mutually exclusive and should not be considered in isolation (paragraph 24 of TR 2024/3).

Furthermore, the many cases dealing with self-education expenses and section 8-1 are no more than examples of the application of these general principles and exclusions to the facts of those cases. These cases provide an indication of the facts relevant in determining the deductibility of self-education expenses. The expressions used in these cases should be taken to describe an attribute of an expenditure in a particular case rather than being an exhaustive test ascertaining the limits of the operation of the general deduction provision. It is, therefore, always necessary to read the words of section 8-1 and apply them to the facts (paragraph 25 of TR 2024/3).

Paragraph 28 of TR 2024/3 is also relevant. It provides: Courts and tribunals have found the following when considering whether self-education expenses were incurred to maintain or improve knowledge or skills:

•         If the self-education is too general in terms of your current income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. This is often the outcome for the cost of self-improvement or personal development courses because the knowledge and skills obtained is too general.

•         Self-education that results in you being better equipped to perform your current income-earning activities is deductible where the self-education has the requisite connection to your income-earning activities at the time.

•         Obtaining a higher degree of qualification within your profession or industry is deductible where the self-education has the requisite connection to your income-earning activities at the time.

Application to your circumstances

To determine whether circumstances exist that support your self-education deductions, it is necessary to determine whether there is a sufficient connection between you incurring your Course university tuition fees and your past and current income earning activities as Role A (past) and Role B (current). Whether such a connection exists is a question of fact and is to be determined by reference to all the facts in your case.

In our analysis, we compared the role of a psychologist versus Role B. Whilst there are some similarities, we consider them to be two distinct careers.

The Course can be described as a high-level training in psychopathology, assessment, and therapeutic interventions for adults and children with clinical disorders. The training has a specific focus assessing conditions such as anxiety disorder, clinical depression, schizophrenia, eating, and personality disorders, trauma, alcohol dependence, childhood disorders and psychogeriatric conditions.

We consider that you are not entitled to a deduction for all your university tuition fees incurred in undertaking the Course. There are several units of study that do not have the necessary connection to your income-earning activities at the time or in the future.

Instead, we have considered the connection that each individual unit of study within the Course has to your past and current income earning activities. We reviewed the description you provided for each unit of study within the Course and your view on how the unit of study is relevant to your current income earning activity. We have included below our view on whether the units of study are sufficiently connected to your income earning activities.

Group A

Unit of study A

We are not satisfied that the knowledge imparted by this unit has a sufficient connection to your past income earning activities as Role A. Although the unit of study has the ancillary purpose of developing your skills, it is our view that the knowledge imparted by this subject had a general link or causal connection to your formal employment duties.

Based upon the subject description, this unit of study focuses on counselling, identifying, and understanding the course and prognosis of substance use disorders, anxiety, depression, trauma related disorders and borderline personality disorder.

This unit of study applies a higher level of knowledge than what is required for Role A. You are therefore not entitled to a deduction for this unit.

Unit of study B

We are not satisfied that the knowledge imparted by this unit has a sufficient connection to your past income earning activities in Role A. Although the unit of study has the ancillary purpose of developing your skills, it is our view that the knowledge imparted by this subject had a general link or causal connection to your formal employment duties.

Based upon the subject description, this unit of study focuses on theoretical models of family functioning, understanding family life cycle changes and issues relevant to modern families, identifying problematic areas, and using interventions to remediate familial patterns.

This unit of study applies a higher level of knowledge than what is required for Role A. You are therefore not entitled to a deduction for this unit of study.

Unit of study C

We are not satisfied that the knowledge imparted by this unit has a sufficient connection to your income earning activities for Role B. Although the unit of study has the ancillary purpose of developing certain skills, it is our view that the knowledge imparted by this subject had a general link or causal connection to your formal employment duties.

Based upon the subject description, the aim of this unit of study is to enhance student's awareness of the importance of scientific research base for the practice of clinical psychology, to consolidate students practical understanding of research methodology related to clinical psychology and to teach appropriate research design and clinical analysis skills.

In contrast, your employment responsibilities for Role B do not include scientific research for clinical psychology. This unit of study applies a higher level of knowledge than what is required for Role B. You are therefore not entitled to a deduction for this unit of study.

Unit of study D

We are not satisfied that the knowledge imparted by this unit has a sufficient connection to your income earning activities for Role B. You have stated, Unit of study D continues from Unit of study C. It is our view that the knowledge imparted by this unit has a general link or causal connection to your formal employment duties.

Based upon the subject description, this unit of study focuses on research base for the practice of clinical psychology. In contrast, your employment responsibilities for Role B do not included research for clinical psychology. This unit of study applies a higher level of knowledge than what is required for Role B. You are therefore not entitled to a deduction for this unit of study.

Unit of study E

We are not satisfied that the knowledge imparted by this unit has a sufficient connection to your income earning activities in Role B. Therefore, as you have stated Unit of study E continues from Unit of study C and Unit of study D, it is our view that the knowledge imparted by this subject has a general link or causal connection to your formal employment duties.

Based upon the subject description, this unit of study focuses on research base for the practice of clinical psychology. In contrast, your employment responsibilities for Role B do not include research for clinical psychology. This unit of study applies a higher level of knowledge than what is required for Role B. You are therefore not entitled to a deduction for this unit of study.

Unit of study F

We are not satisfied that the knowledge imparted by this unit has a sufficient connection to your income earning activities in Role B. Although the unit of study has the ancillary purpose of developing your skills, it is our view that the knowledge imparted by this subject only has an indirect or causal link to your formal employment duties.

Based upon the subject description, this unit of study focuses on the practice of psychology. In contrast, your employment responsibilities do not include an involvement in the practice of psychology. This unit of study is more aimed at a role as a clinical psychologist. This unit of study applies a higher level of knowledge than what is required for Role B. You are therefore not entitled to a deduction for this unit of study.

Unit of study G

We are not satisfied that the knowledge imparted by this unit has a sufficient connection to your income earning activities in Role B. Therefore, as you have stated Unit of study G continues Unit of study C and Unit of study D, it is our view that the knowledge imparted by this subject has a general link or causal connection to your formal employment duties.

Based upon the subject description, this unit of study focuses on research base for the practice of clinical psychology. In contrast, your employment responsibilities for Role B do not include research for clinical psychology. This unit of study applies a higher level of knowledge than what is required for Role B. You are therefore not entitled to a deduction for this unit of study.

Group B

We have determined the following units of study have a connection:

Unit of study H

We are satisfied that the knowledge imparted by this unit has a sufficient connection to Role B.

Unit of study I

We are satisfied that the knowledge imparted by this unit has a sufficient connection to most of your employment responsibilities in Role B.

Unit of study J

We are satisfied that the knowledge imparted by this unithas a sufficient connection to most of your employment responsibilities in Role B. The unit maintains or improves a skill specific to your work activities.

Conclusion

We have determined the overall Course does not have the necessary connection to your employment. The Course and your work activities are only generally related. The units within the Course are considered beyond the requirements of the roles and would be more relevant to a role of a clinical psychologist. The Course has the potential to enable you to obtain new employment or to open a new income stream, or obtain new employment in a particular profession, occupation, or field of employment in which you are not yet engaged. Therefore, the units of study/subjects listed in Group A are not allowable deductions under section 8-1 of the ITAA 1997.

The units of study outlined in Group B have the necessary connection to your assessable income earning activities and are considered allowable deductions under section 8-1 of the ITAA 1997.

The university tuition fees for the units of study that have not yet been incurred can be included as a tax deduction once they have been incurred for the relevant year, if:

•                    the unit of study falls into Group B and

•                    you remain working in your current role with your current employer.

Otherwise, this may change the outcome of being deductible.

Additional Information

Section 26-20 of the ITAA 1997 outlines the availability of deductions in respect of certain student assistant programs. There is nothing in this section or any other taxation provision that precludes a deduction for course fees incurred where a taxpayer has obtained a loan for all or part of the fees for the course under FEE-HELP.

Accordingly, as you meet the requirements of eligibility for a deduction of self-education expenses and are a full fee paying student; then a deduction for the course fees can be claimed in the financial year in which the expense is incurred. For example, course fees for study undertaken in the period July to December 20XX and January to June 20XX are claimable in the income year ending 30 June 20XX. You incur deductible course or tuition fees when the debt becomes a legal obligation you need to pay back and not when you make a repayment. A course fee debt generally becomes a legal obligation when the financial census date passes.

The repayments you make to the Australian Government on your FEE-HELP debt are not an allowable deduction.

Further information on self-education expenses including how to calculate your claim can be found on our website ato.gov.au and entering quick code QC 72166 into the search bar at the top right of the page.