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Edited version of your private ruling
Authorisation Number: 1012450460843
Ruling
Subject: Property management course
Question
Can your expenditure incurred on a property management course be claimed as an investment loss or as "blackhole expenditure"?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commences on:
1 July 2011
Relevant facts and circumstances
During the relevant year you paid for a property management course. You tried to purchase a rental property using this course but it fell through, despite undertaking building and pest inspections.
Your tax returns show you previously owned a number of rental properties however the last of these was disposed of during the year ended 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 110-35
Income Tax Assessment Act 1997 Section 40-880
Reasons for decision
Section 110-35 of the Income Tax Assessment Act 1997 (ITAA 1997) lists ten kinds of incidental costs an entity may incur to acquire a CGT asset or that relate to a CGT event. Incidental costs that relate to 'education' or 'improving knowledge or skills' are not listed therein.
Section 40-880 of the ITAA 1997 is about 'blackhole expenditure'. It is a provision of last resort that allows a deduction over five income years for certain business capital expenditure incurred after 30 June 2005, which is not otherwise taken into account or denied a deduction by some other provision.
Taxation Ruling TR 2011/6 is about section 40-880 of the ITAA 1997. To qualify for a deduction, the Ruling states the expenditure must be capital nature and must be business related. Paragraphs 64 and 19 of TR 2011/6 state:
64. The expression 'capital expenditure' is not a defined term. Whether expenditure is capital in nature is determined on the facts of each particular case having regard to the principles established by the case law.
19. Business related capital expenditure does not include expenditure relating to non-business activities such as passive investment.
In the High Court of Australia cases of Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60 (at 68-69); (1961) 12 ATD 348 (at 351) and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494 (at 497- 498); 71 ATC 4184 (at 4186); (1971) 2 ATR 557 (at 559), it was made clear that expenses related to improving knowledge or skills are not of a capital nature. The courts in those cases rejected the argument that such improvement amounts to the acquisition of something of an enduring nature, equivalent to the extension of plant in a factory.
In your case, we consider your expenditure incurred for a property management course had the nature of 'education' or 'improving knowledge or skills'. The principles established by the case law and the relevant taxation provisions explained above prohibit a capital loss or a blackhole deduction for such expenditure.
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