Edited version of private ruling

Authorisation Number: 1011835713928

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Ruling

Subject: Self education expenses

Question 1

Is the payment for the first 12 months of your PhD deductible as a self education expense?

Answer

No.

Question 2

Are the remaining payments for your PhD deductible as a self education expense?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You are a fully qualified in your field.

You are currently employed as a part time specialist.

You have been studying for a Graduate Research degree (PhD) with a university since 200X as part of training/work.

The course will be completed at the end of 2011 or early 2012.

The subject of the course is related to factors that you deal in your job.

The fee for the first 12 months of the course was paid in 2009.

The PhD course was commenced as a component of specialist training.

The specialist training required a minimum of 12 months of research. You have chosen to complete a full PhD.

You obtained your specialist qualification in 2009 after fulfilling the 12 months of research requirement.

You did not become a specialist until you had completed the 12 months of research requirement.

This course is not required by your employment but you see it as part of your continuing education to maintain your specialist registration without which you would not be able to be employed as a specialist.

The completion of this course will have no impact on your current position.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

A deduction is not 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).

You started the PhD in order to satisfy the 12 months of research required for your specialist qualification. You became a specialist after you completed the 12 months of research requirement.

Therefore, it is considered that the first 12 months of study was designed to enable you to open up a new income earning activity as a specialist and the fee that you paid for this study is not deductible.

However, once you started practising as a specialist, the remainder of your course relates to your current income earning activity and will maintain or improve that skill or knowledge. Therefore, the remaining PhD fees will be deductible as a self education expense in the year in which you incur the fees.

Detailed reasoning

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.

The deductibility of self education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for the costs incurred in undertaking your PhD, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable 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).

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.

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. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

To determine whether circumstances exist which would support your deduction for the Graduate Research degree (PhD) the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

You started the PhD in order to satisfy the 12 months of research required for your specialist qualification. Prior to beginning this course, you were not employed in the area of your chosen specialty. It was only after you had completed the 12 months of research requirement that you became a specialist.

Therefore, it is considered that the study was designed to enable you to open up a new income earning activity as a specialist and the upfront fee that you paid is not deductible.

However, after completion of the first 12 months of your PhD, you were able to start practising as a specialist. The remainder of your course will relate to your job as a specialist and will maintain or improve that skill or knowledge. Therefore, the remaining PhD fees will be deductible as a self education expense in the year in which you incur the fees.

Other Information - limit to the deductibility of self education expenses 

The self education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936.

An explanation of how this provision operates in relation to working out your self education expenses is provided at paragraphs 119 to 155 of TR 98/9, which can be accessed on our website www.ato.gov.au or pages 37 and 38 of TaxPack 2010.

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