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Ruling

Subject: Self-education expenses

Question

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

Answer

No

This ruling applies for the following period

Year ending 30 June 2018

The scheme commenced on

4 February 2013

Relevant facts

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling

· copy confirmation of employment

· copy of admission application

· copy of extract from your work agreement

· copy of your course details

You are employed in a particular profession.

You have enrolled and have been accepted to study a course.

You intend to remain in fulltime employment throughout this course.

In the course of your employment you are required to conduct all duties required by the company, including, participating in required early training and assessments, as well as conduct any duties at the instruction of the company.

You are undertaking this course to allow you to progress your career, so that you may be eligible for the appointment of a supervisory position in the future.

This course does not relate to the operational aspects of current duties but relates to the business aspects within which a supervisory role would deal with throughout their role in administration and management.

You will incur expenses for course fees.

You intend to pay these fees upfront and you will not be receiving any Austudy payments.

You will not receive any allowance or reimbursement for expenses incurred in relation to your study.

Your employer did not encourage you to undertake this course and has no knowledge of your intention to study.

Your employer will not provide you with study leave and you will be studying in your own time and during work time.

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].

In the Administrative Appeals Tribunal case Pujara v. Federal Commissioner of Taxation (2003) AATA 331 (Pujara's case), the taxpayer was enrolled in a Masters of Business Operations Management course at the University of Western Sydney.

The purpose of the course was to provide advanced theoretical and practical skills in managing quality in a business organisation, including logistics management and statistical process control.

The taxpayer was also employed part-time for a particular company. The duties included the manual assembly of orders, updating records of bulk stock and assisting with stock distribution.

In denying the taxpayer a deduction for his/her self-education expenses, the Tribunal determined at paragraph 19:

· the routine nature of the applicant's activities was such that the necessary skills and performance could be maintained without further training. Objectively, the new information and learning he/she acquired through the Masters degree was at a higher level than he/she required for his/her position. It would not improve or tend to improve his/her proficiency in a relatively junior role. The "perceived connection" between the Masters degree and the applicant's activities is missing. The Tribunal is not satisfied, therefore, that the expenditure on self-education during the 1998-99 year of income was incidental and relevant to gaining or producing his/her assessable income.

The tribunal also determined that the taxpayer's course of education was unlikely to lead to an increase in this income from his/her current employment.

You are employed in a particular profession. You have enrolled to study a MBA so you may be eligible for the appointment to a supervisory position in the future.

It is considered that your case is similar to Pujara's case in that the degree you are undertaking is at a much higher level than would be required to carry out your current duties.  Furthermore, it is considered that the study is designed to open up a new income earning activity.

Therefore, you are not entitled to a deduction for self-education expenses.  

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