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Edited version of private ruling

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Ruling

Subject: Self education expenses

Are you entitled to claim a deduction for fees incurred for a hospitality course and an international hospitality management course as self education expenses?

No.

This ruling applies for the following period

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2008

Relevant facts

You are an overseas student.

You started a hospitality course.

You were not required to complete any work placements as part of your studies.

You have now started an international hospitality management course.

You first started working at a retail food store after starting your hospitality course.

The store makes and sells sandwiches, coffee, breads and other foods to take away.

Your duties include:

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (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.

Self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's income earning activities at the time the study is undertaken.

Taxation Ruling TR 98/9 considers the deductibility of self education expenses and states that 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, the self-education expenses are allowable as a deduction.

In addition, if the study of a subject of self-education objectively 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, the self-education expenses are allowable as a deduction.

However, no deduction is allowable for self-education expenses if the study is 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). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

The decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena)establishes the principle that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to get employment or to obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Example: Stuart wants to be the manager of a hotel. He enrols in a hotel management course, one semester of which involves an industry placement to gain work experience. Stuart is placed with a major hotel where he gains experience in all facets of hotel management, including catering, housekeeping and bar work. He claims a deduction for the cost of the course against income earned during the placement.

A deduction is not allowable because the study is designed to get Stuart employment as a hotel manager, not derive income from work experience. It is incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Example: Shannon, who is undertaking a four year university degree in mining engineering, takes a job as a casual employee with a mining company during the end of year holiday period. It is the company's policy to take only students who are pursuing relevant studies. Shannon is not entitled to a deduction for the cost of the course because the study is designed to get future employment in the field. It is incurred at a point too soon.

We believe that Maddalena also supports our view that 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 taxpayer's current employment. In Case Z1 (1991) 92 ATC 101; AAT Case 7541 (1991) 22 ATR 3549, a public service clerk studying for a law degree later obtained a legal officer position in the public service. Such expenses of self-education were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Hospitality course

In your case, you commenced your study before you started working at the retail food store. Therefore, the study did not have a relevant connection to your income earning activities at the time the study is undertaken and the expenses incurred are not deductible as they were incurred at a point too soon.

International hospitality management course

You have now commenced an international hospitality management course. Your employment activities at the retail food store include supervising staff, ordering and serving customers. Your study of international hospitality management will not maintain or improve the skills or knowledge required for your current work and will not lead to an increase in your income for carrying out that work. This course of study is being undertaken to begin a career in your chosen field, not to advance your career in retail food sales. Therefore, the expenses were incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997.

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