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Edited version of your private ruling
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Ruling
Subject: Self education expenses
Question
Are you entitled to a deduction for exams and the course?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on
1 July 2011
Relevant facts
For the past four years, you have worked as a contract professional.
Your pay is depended directly on the work that you did.
You decided to pursue qualification as another professional so that you could accept work from outside your employer.
You incurred expenses to sit various exams and attend a course, the completion of which is required before being able to practice as another professional.
You were qualified as a practitioner prior to undertaking the course, however, you were not allowed to practice.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Self education expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This section allows a deduction for losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent to which they are capital, private or domestic in nature.
To be deductible under this section an expense must have the essential character of an expense incurred in gaining or producing assessable income or, in other words, of an income-producing nature.
The Commissioner's view on the deductibility of self education expenses is contained in Taxation Ruling TR 98/9. In accordance with TR 98/9, expenses of self education are allowable 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; and
· the study of a subject of self education objectively leads to, or is likely to lead to, an increase in a taxpayers income from his or her current income-earning activities in the future.
Costs of self education are not deductible 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. In such situations the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income [see Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161].
Taxation Ruling TR 98/9 provides the following example:
Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist.
Exams
While the successful completion of the exams leads to you being qualified as a professional, they are considered to be testing your skills rather than providing you with additional skills and opens up a new area of employment.
Expenses associated with opening up a new area of employment are considered to be capital in nature. Thus the costs associated with undertaking the exams are not deductible.
Course
The course is considered to be part of gaining your qualification. The skills gained are not to enable you to undertake your current job. Rather, they are a prerequisite to allowing you to practice as another professional. As such, the expense is considered to be incurred at a point too soon to be regarded as incurred in gaining your assessable income. Furthermore, your situation is similar to the example above and likewise, a deduction is not allowed.
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