Edited version of private ruling

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Ruling

Subject: Self education

Are you entitled to a deduction for self education?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are undertaking a certificate course at an overseas university which you commenced on the relevant date.

When you are not away at university and you are able to accept work, you undertake casual work in a related field.

You earned less than $X,000 for 2008-09 and less than $Y,000 for the 2009-10 income years.

The course will provide you with the skills to obtain full-time work in your particular field and other activities within this field.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in the course of gaining or producing the assessable income, but are not allowable to the extent that they are of a capital, private or domestic nature.

Self education expenses fall for consideration under section 8-1 of the ITAA 1997.

Taxation Ruling TR 98/9 sets out the circumstances in which self education expenses are allowable as deductions, and states that these expenses are deductible where they have a relevant connection to the taxpayer's current income-earning activities.

A deduction is allowable for self education expenses if a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self education enables the taxpayer to maintain or improve that skill or knowledge.

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, the ruling states that a deduction is not allowable for self education expenses if the study is designed to enable a taxpayer to get employment, to obtain new employment, or to open up a new income-earning activity (whether in business or in the taxpayer's current employment). The expenses come at a point in time too soon to be regarded as being incurred in gaining or producing assessable income.

In your case, you commenced the course on the relevant date. Prior to this you earned a small amount of money as a casual employee working in a related field. While you are studying, you are employed casually when your commitments to study allow.

In Gupta v. FC of T 2002 ATC 2319; 2002 51 ATR 1205 (Gupta's case) the taxpayer was undertaking a Bachelors degree in Computer Science while he was employed on a casual basis as a demonstrator in the University's School of Computing and IT. The taxpayer claimed deductions for his self education expenses on the basis that there was a direct connection between the expenses incurred and his maintaining or improving his skills necessary for the work at the university. The Commissioner of Taxation denied the claims on the basis that the expenses were incurred to enable him to gain his degree, and were not incurred in the process of earning his assessable income as a part-time employee. The taxpayer sought a review of this decision by the Administrative Appeals Tribunal (AAT). The AAT held that the self education expenses were not deductible as the expenses were not incurred in gaining or producing the taxpayer's assessable income from casual work at the university that income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon.

Your circumstances are similar to those in Gupta's case, in that you were studying while working casually when your study commitments allow. It is considered that your study is not to assist you in your casual work, but to enable you to obtain qualifications that would allow you to secure full-time employment in the future, either with your employer or in a related field.

Additionally, when looked at objectively, it can be concluded that the quantum of income derived compared to the expenditure of undertaking the course, the study is not incurred to earn the assessable income. Rather, even though the study may benefit you in your casual work, it is incurred to gain the necessary skills to allow you to obtain full-time work with your employer or other activities within the field.

Consequently, your self education expenses are not deductible under section 8-1 of the ITAA 1997. The expenses were incurred at a point too soon.

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