Edited version of your private ruling

Authorisation Number: 1012561378923

Ruling

Subject: Course fees and travel expenses

Question

Are you entitled to a deduction for your travel, accommodation, course fees or other costs incurred in travelling overseas in relation to investing in a fund?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You wanted to invest in a fund. The fund is an Australian based investment fund investing overseas.

You travelled overseas with a group of people interested in investing in this fund. You went to gain a further understanding into what options are available to invest in the foreign country.

You attended an educational and training course relating to the fund and a number of other investing options and opportunities available in the overseas country. The course offered classroom based education and field trips to understand what types of investment are available.

The course provided education in the relevant areas to help you to decide on the correct investment opportunity. The course helped you understand the funds activity and the assets the fund will be investing in. It also provided an understanding of the complexities relating to purchasing assets in the overseas country.

You then invested money in this fund in your spouse's name. You do not have investments held in your name. You and your spouse share all assets and liabilities equally. Your spouse was not able to travel overseas to attend the course, so you attended as the representative for both of you.

You incurred costs for the course fees, return air fares, accommodation, travel insurance and other expenses.

You also incurred an additional upfront administration fee.

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.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it 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; (1958) 100 CLR 478 (Lunney's case)),

· 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 (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

Taxation Determination TD 95/60 deals with the issue of whether fees paid for obtaining investment advice are an allowable deduction for taxpayers who are not carrying on an investment business.

TD 95/60 explains that a fee for drawing up a financial plan is not deductible because it is not expenditure incurred in the course of gaining or producing the assessable income from the investments. It is too early in time to be an expense that is part of the income producing process as it is an expense that is associated with putting the income earning investments in place. Therefore the expense has an insufficient connection with earning income from the investments, and is considered capital in nature.

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.

However, TR 98/9 states that no deduction is allowable for self education expenses 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. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

To determine whether your expenses are deductible, the essential character and nature of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your assessable income.

Although TD 95/60 and TR 98/9 do not directly address your circumstances, the principles outlined are relevant.

As highlighted in TD 95/60, where an expense relates to setting up investments, the costs are considered to be a capital expense and not deductible.

Furthermore, it should be noted that an outgoing will not be deductible unless it is incurred in gaining or producing the assessable income of the taxpayer who incurs it (Federal Commissioner of Taxation v. Munro (1926) 38 CLR 153). In that case, the expenses were not incurred by the taxpayer in earning his assessable income in his capacity as director but rather the income of the company. There was no nexus between the outgoing and the assessable income of the taxpayer.

Similarly in your case, you incurred the costs in relation to investments now held in your spouse's name. The expenses therefore relate more to your spouse's assessable income and not yours. Although you share your assets and liabilities with your spouse, this is a private arrangement that does not influence your taxation affairs.

It is a long standing principle that a taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating some casual connection between the expenditure and the derivation of income. What must be shown is a closer and more immediate connection. The expenditure must be incurred in gaining or producing your assessable income (Lunney's case). These principles have been affirmed by the High Court in Commissioner of Taxation v Payne [2001] HCA 3.

In your case, even if the investments were held in your name, the course and travel expenses related to your future investments and did not relate to servicing your existing investments. Accordingly the expenses are incurred at a point too soon to be considered as incurred in gaining or producing your assessable income. The course and associated expenses including the upfront administration fee do not have a sufficient nexus to the derivation of your assessable income. The expense is also considered to be capital in nature. Therefore, the expenses incurred are not deductible under section 8-1 of the ITAA 1997.

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).