Edited version of private ruling

Authorisation Number: 1011560823111

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Ruling

Subject: Self education

Are you entitled to a deduction for self education expenses?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are a health care worker.

You undertook an executive coaching program. You said that we could use information on the web site.

You undertook the program as a way to develop and improve your interpersonal, communication and leadership skills.

You state that there are no modules to the program, it was tailored to your specific needs. You were not provided with a plan. Rather, you and the coach each took notes.

You have been competent in performing the practical duties of your employment. However, your role requires you to go beyond these skills as there is a strong emphasis on interpersonal and other related soft skills.

Spending time developing these through this course has enabled you to better manage your workload, improved communication with clients and colleagues and enabled you to identify and initiate change within the workplace.

Your employer has not formally recommended or encouraged you to attend this program. However, they do encourage self development.

You have not and will not gain a pay rise as a result of undertaking the program but you believe it will assist you to get a promotion to unit manager in the future.

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 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 self education expenses. Generally, a deduction is allowable for self education expenses under section 8-1 of the ITAA 1997 if your income-earning activities are based on the exercise of a skill or specific knowledge, and the self education enables you to maintain or improve that skill or knowledge.

No deduction will be allowable if the course of study is too general in terms of the taxpayer's current income earning activities and there is not a sufficient nexus between the course of self education and the income earning activity. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances.

To determine whether circumstances exist which would support the deduction for a personal development course we must look to the 'essential character' of the expenditure and specific duties required by a taxpayer to undertake their income earning activities.

In case Case U101 87 ATC 616 (Case U101) and Re Naglost and Commissioner of Taxation (Cth) (2001) 2002 ATC 2008; (2001) 49 ATR 1028 (Naglost's Case), the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses.

Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently.

The AAT denied the claim and held that there was not a sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment.

Conversely, in Naglost's Case the AAT allowed a partial deduction to a serving member of the Royal Australian Air Force (RAAF) who undertook a course of study at 'Mastery University'.

The taxpayer's duties included management responsibilities and the course of study was designed to enhance leadership, management capabilities and decision-making processes. Further, the course was approved by the taxpayer's employer and some expenses were reimbursed by the RAAF.

The AAT held that the expenditure was allowable as, objectively considered, the course would improve the taxpayer's proficiency in his employment, in particular in relation to his management responsibilities. Therefore, any expenditure on the course would be relevant and incidental to the taxpayer's income-producing activities.

The Tribunal also found that whilst the fact the RAAF assisted the taxpayer to pay the course fees was not determinative of itself, it indicated that the RAAF regarded the course as relevant to the taxpayer's employment.

Naglost's Case demonstrates that a personal development course will have the 'essential character' of an income-producing expense where a taxpayer can demonstrate a link, not only to skills and knowledge in general, but also to their current duties. Furthermore, where an employer subsidises a particular course of study, though not decisive in itself, this fact may lend weight to self education expenditure having a nexus with income earning activities.

In your case, the knowledge that you gained from undertaking the program may have resulted in an improvement in your communication and interpersonal skills thereby allow you to develop as a leader and may also allow you to perform your duties more effectively. However, you have stated that the course was tailored to your needs but you have failed to demonstrate the relevant nexus to your income earning activity. From the information provided about the program, it is considered to be too general to have a specific connection with your income earning activities.

Additionally, your circumstances can be distinguished from Naglost's Case in that, while your employer encouraged development, they did not either formally recommend or encourage you to undertake the particular program.

It is considered that an insufficient nexus exists between the coaching program and your current income earning activities. Accordingly, the cost of attending this program is not deductible under section 8-1 of the ITAA 1997.

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