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Ruling

Subject: Deduction for self education expenses

Question

Are you entitled to a deduction for self education expenses?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You finished work with your employer when your contract expired. Previously you had several contracts with your employer.

Prior to ceasing work you were in negotiation for a new position which you were later offered.

After ceasing work you travelled to several overseas countries for several weeks.

After your return from your travelling you returned to work with your employer.

A main purpose of your travel was to gain further knowledge in your field of expertise.

You travelled to several locations where you observed and experienced various activities.

You have not kept a travel diary.

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.

Taxation Ruling TR 98/9 states self-education expenses are allowable as a deduction if your current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables you to maintain or improve that skill or knowledge.

However, if the subject of the self-education is too general in terms of your income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist.

The High Court of Australia has indicated that the expenditure must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478 at 497 498; (1958) 11 ATD 404 at 412).

There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income (Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; (1949) 8 ATD 431 at 435).

Consequently, it is necessary to determine if there is sufficient connection between your trip and the gaining of your assessable income. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

Your self-education expenses were incurred while you were unemployed. These expenses were not incurred in earning the income from your previous employment as that income had already been earned when the expenses were incurred.

Also, the self-education expenses were incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income from your future employment.

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.

In your case, you were seeking to broaden your knowledge in your field and to be better able to do your job.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In Case R94 84 ATC 628 a college librarian was disallowed overseas travel expenses in making a study tour of China organised by the Library Association. The benefits derived by the taxpayer might have made her a better librarian, but the nexus between the outgoings and deriving assessable income was too remote. The taxpayer voluntarily made the trip and the expenditure was essentially of a private nature.

In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) examined previous court decisions and concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

The circumstances of your case can be compared to the above decisions. It is acknowledged that the travel will provide you with first hand knowledge, but it does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. The trip may broaden your knowledge and benefit you however, as with the cases quoted above, the courts have held that these reasons alone are not enough to demonstrate a sufficient connection between the travel and your income-producing activities.

We acknowledge you are now employed, however it is considered that the self education was incurred at a point too soon and would also be considered to be too general in terms of maintaining or improving a skill or some specific knowledge in your job.

At the time you undertook the trip you were unemployed (although you were offered employment at a later date). Therefore, the expenses of your trip were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income from your future employment. Also, the expenses were not incurred in earning the income from your previous employment as that income had already been earned when the expenses were incurred. Therefore, the expenses are not allowable under section 8-1 of the ITAA 1997.

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