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Ruling

Subject: Self-education expenses

Question 1

Are you entitled to claim a deduction for self-education expenses incurred in undertaking a university course?

Answer

No

This ruling applies for the following period

Year ended 30 June 2012

The scheme commences on

1 July 2011

Relevant facts and circumstances

You are currently studying a Bachelor degree full-time.

As part of your studies you were required to complete work experience in the field of the degree.

You were accepted in a casual position with a company.

You continued your full-time studies during this time and were required to travel to complete your examinations and assessments.

You expect to finish your studies in 2012.

You have accepted a new position as a graduate with the company where you undertook work experience.

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. Self-education expenses are deductible where they have a relevant connection to the taxpayer's current income earning activities.

Paragraphs 13 and 14 of Tax Ruling TR 98/9 provide that self education expenses 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 activities in the future.

Where 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, 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 taxpayers current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161).

The issue of self-education expenses and casual employment was considered in Gupta v. FC of T 2002 ATC 2319; (2002) 51 ATR 1205 (Gupta's Case). In that case the taxpayer commenced a Bachelor of Computer Science degree, and subsequently began casual work at the university's School of Computing and Information Technology as a computer laboratory assistant. After completing his course he remained in the employ of the university as a tutor and researcher.

The Administrative Appeals Tribunal (AAT) held that the essential character of the expenses was to qualify the taxpayer through obtaining his degree so that he could get ahead within the Information Technology industry to a more highly paid position. They accepted that his experience gave him the knowledge necessary for the casual university work, which was relatively low-skilled and routine. They found that on completion of the degree, however, the taxpayer would have acquired more highly developed skills, qualifying him to undertake more responsible and demanding work than previously. It was held that the expenses were not incurred in gaining or producing the taxpayer's assessable income from casual work at the university, that income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon.

Paragraph 57 of TR 98/9 gives the following example of the deductibility of self-education expenses where casual employment is undertaken by a student:

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.

Your situation

Your circumstances are similar to those in the above example and comparable to the taxpayer in Gupta's Case, in that you were employed casually in the same field that you are studying at university.

It is considered that your study is not to enable you to maintain or improve skill or knowledge in your casual employment; rather, this income is incidental to your studies. Your self-education expenses are incurred to secure employment in a new income-earning activity in the future and they are incurred at a point too soon. On completion of your studies you will be allowed to carry out duties that you would not have been able to do in your casual position. Consequently, your self-education expenses are not deductible under section 8-1 of the ITAA 1997.

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