Edited version of private ruling

Authorisation Number: 1011649865117

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Ruling

Subject: Self education expenses

Are you entitled to a deduction for the costs associated with sitting an examination to enable you to practice a profession in Australia?

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2007

Relevant facts

You are a foreign trained professional.

You are currently working in a different occupation .

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Self-education expenses

Self-education expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This section allows a deduction for losses and outgoings, which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are of a capital, private or domestic nature.

The Commissioners view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9. In accordance with paragraphs 13 and 14 of TR 98/9, expenses of self-education will satisfy the requirements of section 8-1 of the ITAA 1997 if:

· a taxpayers 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, or

· 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 their current income earning activity in the future.

Provided there is sufficient connection between your course of self education and your current income earning activities, you are entitled to claim a deduction for your self-education expenses.

However, as stated in paragraph 15 of TR 98/9, self-education expenses will not be deductible if the study is intended to:

· enable you to get employment

· enable you to obtain new employment, or

· to open up a new income-earning activity (whether in business or in your current employment).

This view is supported by the decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541, which 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 obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

The Commissioner also considers that where some form of employment is a requirement of the course of education, or if short term or casual employment is gained after the commencement of the course of education, expenses in relation to the course will not be deductible, even if the employment does have some connection with the course of self-education.

In such circumstances, it is considered that the requisite connection between the expenditure and the assessable income is absent, as the expenses of self-education are incurred to gain a qualification; the self-education is not being undertaken to maintain or improve a taxpayers employment skills.

The following examples provided at paragraphs 55-57 of TR 98/9 illustrate this view:

55. 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.

56. 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.

57. Example: Shannon, who is undertaking a 4-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.

This view is also supported by the decision in the Administrative Appeals Tribunal (AAT) case Gupta v. FC of T 2002 ATC 2319; (2002) 51 ATR 1205 (Gupta's case). In this case, the taxpayer was an Indian national who travelled to Australia and enrolled in a Bachelor of Computer Science degree. While he was engaged in completing the degree he worked at various times on a casual basis in the universities school of computing and information technology as a laboratory assistant, user support officer and demonstrator.

The taxpayer claimed a deduction for his tuition fees, arguing there was a direct connection between the fees incurred and his maintaining or improving his skills necessary for his work at the university.

The Commissioner disallowed the deductions claiming that the requisite connection between the expenditure and the taxpayer's assessable income was absent. The essential character of the expenditure was private in nature, since the expenses were incurred to enable him to obtain his degree; the expenses were not incurred in the process of earning his assessable income as a casual employee with the university.

The Commissioners decision was affirmed by the AAT in Gupta's case, which stated that the essential character of the tuition fees was to enable the taxpayer to obtain a degree which would enable him to get a more highly paid position in the IT industry. The fees were not incurred in gaining or producing the taxpayers assessable income from casual work at the university - that income was merely incidental to the studies. This was the finding, even though it was acknowledged by the AAT that the studies would have been of benefit to the taxpayer in his casual employment.

In your case, you were required to sit an examination to be able to practice as a professional in Australia and you incurred expenses associated with sitting the examination.

As such, the expenses you have incurred in relation to the examination are incurred at a point too soon to be regarded as having being incurred in gaining or producing assessable income.

The expenses are not deductible under section 8-1 of the ITAA 1997.

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