Edited version of your written advice

Authorisation Number: 1012716266012

Ruling

Subject: Self-education

Question

Are you entitled to a deduction for self-education expenses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on

1 July 2013

Relevant facts

You are an instructor in ground activities.

Your duties include the facilitation and supervision of ground theory, air experience, and supervising pilot experience.

You are currently hold a private pilot licence and certified to fly a glider. You are restricted to an aerodrome when flying.

You have applied for and been selected for pilot training with a view to becoming a flying instructor.

To enable you to instruct in flying, you are required to have an instructors rating.

A Commercial pilot Licence is a prerequisite of the instructor's rating.

The fuel for your flying lessons is provided by an associated entity.

The eligibility criteria for appointment states that you need to possess a sufficient broad knowledge of aviation and/or associated subjects to be able to positively contribute to activities commensurate with the level at which you are appointed.

You are considered to be on duty while you are engaged in approved flying training.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Self-education expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997.  This section allows a deduction for losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent to which they are capital, private or domestic in nature.

To be deductible under this section an expense must have the essential character of an expense incurred in gaining or producing assessable income or, in other words, of an income-producing nature.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, discusses circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

The decision in FC of T v. Maddalena 71 ATC 4161; 2 ATR 541 also 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.

You have argued that FC of T v. Studdert 91 ATC 5006; (1991) 22 ATR 762 (Studdert's case) which considered the deductibility of costs incurred in obtaining a pilot's licence applies to your situation.

In Studdert's case, the taxpayer was a flight engineer employed by Qantas, flying in Boeing 747 passenger transport aeroplanes. Flight engineers supervised and regulated the delivery of power to the aeroplane from the jet engines. To carry out this function the flight engineer sat directly behind the first officer, who in turn sat next to the captain with direct access to four levers which controlled the thrust of the four jet engines of the aeroplane. The taxpayer claimed a deduction for the cost of light aircraft flying lessons leading to a private pilot's licence, which was disallowed by the Commissioner.

The Administrative Appeals Tribunal (AAT) allowed the expenditure on the basis that the flying lessons improved the taxpayer's proficiency in his duties as a flight engineer. The AAT accepted that it was part of the taxpayer's duties to understand the overall workings of aircraft flight, and that the flight engineer understands not only his duties as to the delivery of power, but also the interrelated combination of factors relating to the duties of the pilot which leads to the successful take-off and landing of the aeroplanes.

The Commissioner appealed to the Federal Court, and the appeal was dismissed. It was held that the expenses were relevant and incidental to the activities as a flight engineer that directly produced the taxpayer's income. This finding was based on the facts that undertaking the lessons made him better equipped to perform his skilled job and better proficiency was a motivation for undertaking the lessons.

Your situation can be distinguished from Studdert's case because in that case, the taxpayer was a flight engineer who was actually involved in assisting the operation of the aircraft during flight. In your case, your current role does not involve instructing students to fly. Rather, your role only requires a broad knowledge of aviation so that you can instruct in ground activities and supervise while others who are suitably qualified provide the flying lessons.

Although you may gain knowledge and skills from the flying lessons that could be of some assistance in your general work, flying instruction is not a requirement to undertake your current duties. The predominant focus of the lessons is to qualify you as a flying instructor. That is, the instructor rating will open up a new income earning activity of a flying instructor. It is considered that there is an insufficient connection between the skills and knowledge required in your current duties and the course.

As there is an insufficient nexus between the lessons and your current income earning activities, the expenses associated with getting the licence are not incurred in earning your assessable income. Consequently you are not entitled to a deduction for the expenses.

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