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Edited version of your private ruling
Authorisation Number: 1012556105512
Ruling
Subject: Self education expenses
Question 1
Are you entitled to a deduction for your self education expenses incurred after Month 20XX?
Answer
Yes.
Question 2
Are you entitled to a deduction for your self education expenses incurred before Month 20XX?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2011
Relevant facts
You are a professional.
You were previously a consultant with two entities in your field.
In 20YY you commenced studies to deepen your knowledge in your field. You spend a minimum of 30 hours a week on your studies. You hope to complete your studies in 20ZZ.
You have incurred expenses for your studies.
Since Month 20XX you have been employed at entity A and derive assessable income from this position.
Your knowledge is relevant and useful in this position.
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.
Self education expenses are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities.
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.
No deduction is allowable for self education expenses if the study is designed to enable the 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. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) (Maddalena's case).
To determine whether circumstances exist which would support your deduction for your learning expenses, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.
Case U186, 87 ATC 1066 involved a solicitor who resigned from full-time employment with a firm of solicitors and went overseas to study for a master's degree. His employer gave him assurance that he would be welcome to renew his employment with them on his return. On his return to Australia, he resumed employment with the same firm. The Tribunal refused deductions for travel, study and living expenses associated with the overseas study. The expenses were incurred with a view to the future generation of income to arise from future income-earning activities; they were not incurred in the course of deriving any income during the period the expenses were incurred. The existence of a connection between an outgoing and future source of assessable income is not sufficient to satisfy the requirements of section 8-1 ITAA 1997.
In your case, you were not employed in your field when you commenced your studies it is considered that the studies were directed at your future income. It is considered that the decision in Maddalena's case applies to your situation prior to your position at entity A and the associated expenses were incurred at a point too soon.
Although you held positions with other entities before this, you were not earning assessable income in your field. The necessary connection between your study expenses and your income earning activities does not exist. Therefore no deduction for your self education expenses is allowable under section 8-1 ITAA 1997 prior to Month 20XX.
However, after commencing your position at entity A, it is accepted that your studies maintain or enhance your knowledge and such knowledge is sufficiently connected to your position at entity A. Consequently the expenses incurred for your studies after Month 20XX have the necessary and relevant connection with the earning of your assessable income and are therefore deductible under section 8-1 of the ITAA 1997.
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