Edited version of private ruling

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Ruling

Subject: Self-education expenses

1. Are you entitled to a deduction for expenses you incur in undertaking a course of study?

No.

2. Are you entitled to a deduction for assessment and membership fees?

No.

3. Are you entitled to a deduction for your membership fees under section 25-55 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes.

Relevant facts and circumstances

You are a professional in a place overseas and practiced there for many years.

You migrated to Australia. You are a permanent resident visa holder.

You had difficulty finding work within your profession in Australia. You therefore accepted a role outside your profession.

To pursue your profession, you are now studying a course through a university.

To qualify for full membership of a professional association you must complete more subjects. These subjects are covered within the course you are currently completing.

You have incurred expenses to undertake your course as well as assessment and membership fees.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 25-55.

Reasons for decision

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.

Taxation Ruling TR 98/9 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; (1961) 8 AITR 406).

Self-education expenses are also allowable as a deduction if the study 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.

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 (see FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena); and paragraphs 15 and 48 to 62 of TR 98/9).

The Federal Court in Federal Commissioner of Taxation v. Roberts (1992) 39 FCR 118; 92 ATC 4787; (1992) 24 ATR 479 applied the principle in Maddalena when it overturned an Administrative Appeals Tribunal (AAT) decision. When first hearing this case, the AAT allowed a mine manager a deduction for expenses associated with a MBA degree. The Full Federal Court however, reversed this decision and denied the deduction.

Mr Roberts was retrenched by his employer in Australia and then undertook an MBA course in the United States for two years. On his return to Australia, he was re-employed as a mine manager by another company at a significantly increased salary when compared with his previous position. In overturning the AAT decision, Cooper J considered that moneys were spent to obtain a new employment, albeit one in a better position and on higher wages, rather than in the course of employment and that Maddalena clearly applied.

In your case, you are currently employed in a job outside of your profession while undertaking your course. Therefore, your studies are not undertaken to maintain or improve an existing skill or knowledge used in your 'current' income earning activities. Nor can it be said that the subject of your studies 'objectively led to, or was likely to lead to', a future increase in your income from your 'current' income-earning activities.

You are completing your studies in order to obtain new employment in the profession or in a related field. The expenses associated with your course and the membership fees are therefore considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Therefore, the self education expenses you have incurred are not allowable deductions under section 8-1 of the ITAA 1997.

Question 3

Taxation Ruling TR 2000/7 considers the deductibility of subscriptions, joining fees, levies and contributions.

Where a payment to a professional association cannot satisfy the requirement of section 8-1 of the ITAA 1997, a deduction is allowable under section 25-55 of the ITAA 1997. A maximum of $42 can be deductible under this section for payments made to a professional association.

In your case, although you cannot claim a deduction under section 8-1 of the ITAA 1997, you are entitled to a maximum deduction of $42 for your membership fees under section 25-55 of the ITAA 1997.

Please note, the payment for your assessment is not for membership, so no deduction is allowable under section 25-55 of the ITAA 1997.

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