Edited version of private ruling

Authorisation Number: 1011653787006

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Ruling

Subject: self education expenses

Are you entitled to a deduction for the costs associated with acquiring your pilot qualifications?

No.

This ruling applies for the following periods

1 July 2007 to 30 June 2008

1 July 2008 to 30 June 2009

1 July 2009 to 30 June 2010

The scheme commenced on

1 July 2007

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are employed as an aircraft engineer.

Your duties relate to all areas of aircraft maintenance.

You undertook a commercial pilot's program.

Your employer gave you leave to complete the program.

After completing the program you returned to your former employment but now look after a different maintenance area.

The final component of the program is a compulsory industry placement program (CIPP). You have obtained a placement with another organisation.

After the completion of the CIPP you will be qualified to obtain work as an aircraft engineer or pilot in general aviation.

You undertook the program for a number of reasons including:

· your interest in aviation, both as to the technical knowhow (engineering) and the safe and responsible application thereof (as a pilot)

· the opportunity to maintain and improve your career

· development as an engineer, and

· possible employment as a pilot in the future.

Prior to undertaking the program you had obtained a recreational pilot's licence to obtain a better understanding of the practical application of basic aeronautics. You believe it also allowed you to better communicate with pilots on issues with aircraft equipment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

You are not entitled to a deduction for the costs associated with acquiring your pilot qualifications as they do not relate to earning your assessable income as an aircraft engineer. It is considered the qualifications open up a new income earning activity, that of a pilot.

Detailed reasoning

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 deals with the deductibility of 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, the self-education expenses are allowable as a deduction.

In Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348; (1961) 8 AITR 406, Windeyer J stated:

... a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling...

If a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self-education expense and the income earning activity does not exist.

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.

No deduction is allowable for self-education expenses if the study is to enable a taxpayer to get employment, to obtain a new employment or open up a new income earning activity (whether in business or in the taxpayer's current employment). This includes studies related 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.

Taxation Ruling TR 95/19 applies to employees in the airline industry and deals with work related deductions. TR 95/19 states that a deduction is not allowable for the cost of obtaining an initial licence. A payment for an asset or advantage that has a lasting benefit will be capital in nature. A one-off payment is also more likely to be capital in nature.

You are an aircraft engineer and have incurred expenses in obtaining a recreational pilot's licence and undertaking a commercial pilot's licence program. For these expenses to be allowable they must have a connection with your income earning activities.

Federal Commissioner of Taxation v. Studdert (1991) 33 FCR 75; 91 ATC 5006; (1991) 22 ATR 762 (Studdert's case) considered the deductibility of costs incurred in obtaining a pilot's licence.

In Studdert's case, the taxpayer was a flight engineer employed by Qantas, flying in Boeing 747 passenger transport aeroplanes. Flight engineers supervised and regulated the delivery of power to the aeroplane from the jet engines. To carry out this function the flight engineer sat directly behind the first officer, who in turn sat next to the captain with direct access to four levers which controlled the thrust of the four jet engines of the aeroplane. The taxpayer claimed a deduction for the cost of light aircraft flying lessons leading to a private pilot's licence, which was disallowed by the Commissioner.

The Administrative Appeals Tribunal (AAT) allowed the expenditure on the basis that the flying lessons improved the taxpayer's proficiency in his duties as a flight engineer. The AAT accepted that it was part of the taxpayer's duties to understand the overall workings of aircraft flight, and that the flight engineer understands not only his duties as to the delivery of power, but also the interrelated combination of factors relating to the duties of the pilot which leads to the successful take off and landing of the aeroplanes.

The Commissioner appealed to the Federal Court, and the appeal was dismissed. It was held that the expenses were relevant and incidental to the activities as a flight engineer that directly produced the taxpayer's income. This finding was based on the facts that undertaking the lessons made him better equipped to perform his skilled job and better proficiency was a motivation for undertaking the lessons.

As an aircraft engineer your duties are related to all areas of aircraft maintenance. Aircraft engineers are members of the ground crew.

It is not considered that there is a sufficient nexus between obtaining your recreational and commercial pilot qualifications and your current employment duties. In Studdert's case, the taxpayer was a flight engineer who was actually involved in assisting the operation of the aircraft during flight. It is considered that your duties as an aircraft engineer, working as a member of the ground crew, can be distinguished from the duties of the taxpayer in Studdert's case.

Qualifications as a pilot are not necessary in your current job. It is considered that the flying training does not enable you to maintain or improve your existing skills or knowledge as an aircraft engineer but that completely new skills and knowledge were acquired.

Although some of the content covered in your training may have had some relevance to your current employment, there is not a sufficient connection between the flying lessons and the program and your income earning activities.

Additionally, the cost of obtaining your recreational and commercial pilot's licences would not be deductible, firstly, as the expenses do not relate to your income earning activities and, secondly, as the expenses would be considered to be capital in nature.

No deduction is allowable for the cost of obtaining your pilots' licences or the associated education expenses.

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