Edited version of private ruling

Authorisation Number: 1011734179466

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Self-education expenses

Question

Are you entitled to a deduction for your self education expenses from studying a Diploma of Business Management?

Answer: No.

This ruling applies for the following periods:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You work part time as an administration assistant.

Your work involves performing the following duties:

· Creating and maintaining documents tracking the life cycle of projects

· Entering data into the financial systems and customer database

· Dealing with customers on the telephone or at the front counter.

You studied a diploma in Business Management out of your own professional interest.

You paid course fees in 2009-2010 year of income.

You studied 3 subjects:

1. Manage Projects

2. Manage Operational Plan

3. Manage an information or knowledge management system.

You studied full time.

There is a possibility of a pay increase after completing your study.

Your employer did not reimburse any of your study expenses or give you paid study leave.

Your current position does not have any managerial or supervisory duties as they are undertaken by your manager.

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 the circumstances under which self education expenses are allowable as a deduction. A deduction is allowable for self education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348) (Finn's case).

Similarly, 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, a deduction is allowable.

Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570 (Hatchett's case). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

No deduction is allowable for self education expenses if the study is designed to enable the 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 (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) (Maddalena's case).

In Gupta v. FC of T 2002 ATC 2319; (2002) 51 ATR 1205 [2002] AATA 1301 the Tribunal noted the vast gap in skill level between the type of work performed by the taxpayer in his employment and the subject matter in his university degree. The Tribunal did not accept that the expenditure incurred in completing the degree was in fact incurred in gaining or producing the taxpayers assessable income which was derived from routine and low skilled casual work. The income was merely incidental to the studies so that the requisite connection between self education expenses and assessable income was absent notwithstanding that the study may have been of some benefit to the taxpayer in his casual employment. The Tribunal reached a similar conclusion in Pujara v. FC of T [2003] AATA 331(Pujara's case).

It is accepted that your studies may have been of some benefit to you in your work as an administration assistant. However, that benefit is only incidental as your studies are providing you with knowledge and skill at a higher level than that required for an administration assistant. The subjects studied all relate to management. The primary purpose of your studies is not to enhance your income earning capabilities and future prospects as an administration assistant. Like the taxpayers in Gupta v. FC of T and Pujara's case, your studies are not going to lead to increased skill in, or income from, your current employment.

Finns case does not apply in your situation as the course will not maintain or improve the skills or knowledge required to be an administration assistant. Similarly, as you are an administration assistant and the course is designed to enhance or develop management skills, the nexus is not sufficient to allow Hatchett's case to apply to your situation.

It is considered that the decision in Maddalenas case applies to your situation. Your studies will assist you to get a job as a manager. In Case Z1 22 ATR 3549; 92 ATC 101, a public service clerk studying for a law degree later obtained a legal officer position in the public service. The qualifications as a solicitor were not necessary for her current employment. The expenses were held to have been incurred in getting work as a legal officer not in doing work as an employee.

Your expenses are directed to the gaining of future income and are, therefore, considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. A deduction is not allowable under section 8-1 of the ITAA 1997 for self education.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).