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Ruling
Subject: self education
Question
Are you entitled to a deduction for self education expenses incurred prior to your current income earning activity?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
01 July 2011
Relevant facts and circumstances
Prior to starting your current income earning activity you were required to pass a test.
You attended a preparation class at university.
You incurred expenses to undertake the class and test.
After completing the test you started your current income earning activity.
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.
The deductibility of self education expenses is considered 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 full-time study at Curtin University, 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).
In your case, you incurred expenses to study for and undertake the test which allowed you to start your current income earning activity. However, at the time you incurred these expenses, your studies were not undertaken to maintain or improve an existing skill or knowledge used in your 'current' income earning activities. Nor can it be said that the subject of your studies 'objectively led to, or was likely to lead to', a future increase in your income from your 'current' income-earning activities.
These expenses are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.
Accordingly, you are not entitled to a deduction for your self education expenses under section 8-1 of the ITAA 1997.
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