Edited version of private ruling

Authorisation Number: 1011572534225

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Ruling

Subject: Self education expenses

Are you entitled to a deduction for self education expenses?

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You have been a music teacher for many years.

You are undertaking a musically themed overseas tour. The tour is for X days.

Your whole trip is Y days.

Prior to the commencement of the tour, you will be attending performances in more than one city.

The tour itinerary includes sightseeing, concerts, recitals and performances.

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.

To satisfy the first limb of section 8-1 of the ITAA 1997, the loss or outgoing must be relevant and incidental to the operations or activities from which the assessable income is produced: Ronpibon Tin N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236. This principle is also expressed in terms of there having to be a sufficient nexus or connection between the outgoing and the production of assessable income.

Taxation Ruling TR 98/9 sets out the Commissioner's view on self education expenses.

Self education expenses are deductible if:

· they have a relevant connection to your current income-earning activities

· your income earning activities are based on the exercise of a skill or some specific knowledge and the subject of self education enables you to maintain or improve that skill or knowledge, and

· the study of a subject of 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. However, it should be noted that such a finding is not a prerequisite for deductibility.

TR 98/9 also explains that expenses incurred on overseas study tours or sabbaticals, on work-related conferences or seminars, or attending an educational institution are deductible if the necessary connection with a person's income producing activity exists. However, the ruling also explains that if the subject of the self education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the self education expense and the income earning activity does not exist.

The Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travel expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers.

In Case U 109 87 ATC 657 the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural history museum society of which he was a member. During the course of the trip, he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that although the taxpayer may have been a better teacher because of the travel, this fell short of the sufficient connection required between the travel and their income earning activities. The AAT stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

The circumstances of your travel are similar to travel undertaken in the case noted above. We acknowledge your reasons for undertaking the travel to enable you to enrich your teaching and understanding of music. The trip may broaden your knowledge and benefit you as a teacher. However, the courts have held that these reasons are not enough to demonstrate a sufficient connection between the travel and the income producing activities. The knowledge that you will gain would be too general in nature for the expenses to be incurred in the course of gaining your assessable income. It is considered that the essential character of the overseas tour is recreational in nature.

Therefore, your trip is not considered to have a sufficient connection to the duties as a music teacher. Accordingly, you are not entitled to deduct expenses incurred in relation to the overseas study tour.

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