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Ruling

Subject: Deductions for self education expenses

Question 1:

Are you entitled to claim a deduction for your self education expenses?

Answer:

No

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You commenced working as a permanent part-time employee in 2010.

Your duties were to assist in the provision of personal services.

You had intended to study as a service provider and there was a prerequisite requirement of completed studies. You applied for and completed this study.

Your employer did not provide you with leave or assistance to study. The study was done in your own time.

In 2012 you commenced studying full-time with your placement as an Australian fee paying student.

You have continued with casual work as an assistant.

You state that the knowledge you gained from your studies has enabled you to carry out your duties as an assistant more efficiently.

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 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.

Self education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income earning activities.

Taxation Ruling TR 98/9 considers the deductibility of self education expenses and states that 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 addition, 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.

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.

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

Case J30 77 ATC 282; 21 CTBR (NS) Case 52 and Case Z1 92 ATC 101; AAT Case 7541 (1992) 22 ATR 3549, deal with claims made by law clerks for admission fees to practise. The claims were disallowed as it was found that the expenses secured the applicants a 'lasting advantage' and as such, were capital in nature.

In Gupta v FC of T 2002 ATC 2319; 2002 51 ATR 1205, the taxpayer was undertaking a Bachelor in Computer Science degree while he was employed on a casual basis as a demonstrator in the university's School of Computing and IT. The taxpayer claimed deductions for his self-education expenses on the basis that there was a direct connection between the expenses incurred and his maintaining or improving his skills necessary for the work at the university.

The Commissioner of Taxation denied the claims on the basis that the expenses were incurred to enable him to gain his degree, and were not incurred in the process of earning his assessable income as a casual employee.

The taxpayer sought a review of this decision by the Administrative Appeals Tribunal (AAT). The AAT held that the self-education expenses were not deductible as the expenses were not incurred in gaining or producing the taxpayer's assessable income from casual work at the university but that income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon.

In your case, you are currently employed as a casual assistant. You are studying towards becoming a qualified service provider.

Your circumstances are similar to those in Gupta's Case, in that you are studying while working casually. Although some of the content covered in your further studies may have relevance to your current employment, the studies will provide you with new skills and knowledge in excess of those required in your duties as an assistant. It is considered that there is an insufficient connection to your income earning activities.

The knowledge and skills gained from your studies that would be of some advantage in your work as an assistant, it would give you a better understanding of the work being done by the service provider whom you are assisting, however it would be incidental to the intended purpose of providing you with an opportunity to open up a new income-earning activity.

It is considered that your study is not to enable you to maintain or improve skill or knowledge in your work as an assistant, but to enable you to obtain qualifications as service provider.

Similar to the cases relating to the law clerks' admission fees, the program you are undertaking will secure you a lasting advantage, that of becoming a service provider.

The principal reason for undertaking the course was to enable you to gain the necessary qualifications to become a service provider. Such a job would constitute new employment or a new income earning activity as per paragraph 15 of TR 98/9. Therefore, the expenses you incur in becoming a service provider are not deductible under section 8-1 of the ITAA 1997. The expenses are incurred at a point too soon.

Consequently, the self education expenses you incur do not have the necessary and relevant connection with the earning of your assessable income. You are therefore, not entitled to a deduction for self education expenses.

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