| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012387355377
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Self education expenses
Question 1
Are you entitled to a deduction for course fees incurred while undertaking a Master of Orthodontics (the course) in an overseas country?
Answer
No.
Question 2
Are you entitled to a deduction for the living cost incurred whilst attending the course?
Answer
No.
Question 3
Are you entitled to a deduction for travel expenses incurred whilst attending the course?
Answer
No.
Question 4
Are you entitled to a deduction for interest expenses on a loan draw down to pay for the course and the living costs whilst undertaking the course?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commences on:
1 July 2007
Relevant facts and circumstances
You graduated from university as a Bachelor of Dental Science.
After graduating you worked as a General Dental Practitioner where you were legally entitled to, and did, perform some minor orthodontic work on patients. However the majority of the work performed on clients was general dentistry. You then undertook and successfully completed the course at an overseas university.
While living and studying overseas you held a student visa only. During the course, you maintained your registration and insurance requirements as a General Dental Practitioner in Australia, and on occasions you practised in that capacity whilst on study leave in Australia.
With the new qualification, you could have either resumed practising as a General Dental Practitioner in the area of Orthodontics (whether wholly or in part) or otherwise submit an application to be considered and registered as a specialist in Orthodontics. However, since graduating you now perform mainly orthodontic work on patients.
The reason that you undertook the course was to increase your ability to charge more for your services, in that the course will allow you to expand further into the orthodontics field and charge higher fees due to your specialist expertise.
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.
A number of significant court decisions have determined that for an expense to satisfy the tests in section 8-1 of the ITAA 1997:
· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense;
· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income;
· it is necessary to determine whether there is the requisite connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income.
Taxation Ruling TR 98/9 discusses the circumstances in which self-education expenses are allowable as a deduction. Generally, a deduction is allowable for self-education expenses if a taxpayer's 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 in their current employment.
Similarly, if 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, a deduction is allowable.
The decision in FC of T v. Maddalena 71 ATC 4161; 2 ATR 541 supports the Commissioner's view that no deduction is allowable if the study is designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayer's current employment. This would include studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (See paragraphs 15 and 48-62 of TR 98/9).
The Commissioner also believes that obiter comments of Lee J in FC of T v Highfield 82 ATC 4463; (1982) 13 ATR 426 are consistent with the view discussed above. Although not necessary in order for him to reach his decision, his Honour discussed whether expenses incurred by a dentist in general practice on a post-graduate degree in periodontics would have been allowable if the study had been undertaken to become a specialist periodontist.
His honour came to no final conclusion on the matter, but recognised that there were equally competing views. On the one hand, such expenses could be said to be allowable on the basis that the dentist was an independent contractor who was attempting to obtain contracts. On the other hand, the expenses would not be allowable because the dentist was attempting to carry on a different income-earning activity or business, and would be in no different position from a person who undertakes study to obtain a job (82 ATC at 4474; 13 ATR at 439). The Commissioner believes the latter view is the correct application of section 8-1 of the ITAA 1997.
In your case, your claim for self education relates to an alternate income earning activity and falls under the scope discussed in Maddalenas case. As a General Dental Practitioner you mainly performed general dental work, even thought you did perform some minor orthodontic work on patients.
While we acknowledge that the knowledge and skills gained from the course could be of some assistance in your General Dental Practitioner position, the course is designed to open up a new income earning activity as an orthodontist. Therefore there is an insufficient nexus between the course and your income earning activities as a General Dental Practitioner.
As such all expenses associated with your Masters of Orthodontics are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and are not deductible.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
