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Edited version of your written advice

Authorisation Number: 1012740328927

Ruling

Subject: Self-education

Question

Is a deduction allowable for expenses incurred for the course?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You operate a business. The business has been successfully running for several years.

The business mainly deals with maintenance and fabrication.

You have also recently bought your first investment property which is currently being rented. You hope to buy more properties in the future.

You are travelling interstate to do a course.

You believe that the course will improve your skills to do a better job in the business as well as provide skills to help maintain the investment property. The course will help you save money in not having to employ tradesman to repair the investment property. The course will also bring in extra income in the business as you will be able to offer a wider range of services to the customers.

The course content and details are found on the relevant website.

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 or are necessarily incurred in carrying on a business for the purpose of 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.

A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997:

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business 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). 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).

Also if a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self-education expense and the income earning activity does not exist.

You advise that the cost of the course is incurred to improve your skills and help earn extra income in your business. However, much of the course does not directly relate to the current activities of the business.

The course covers areas not part of your current business. The content of the course does not focus on the current activities of your business.

Even though a course may help in some ways and provide some skills, these reasons alone are not enough to demonstrate a sufficient connection between the expenses and your income producing activities. There are many courses and experiences which may help, however this does not automatically mean that the associated expenses are deductible.

While the course may be of assistance to you, the expenses incurred in acquiring this knowledge are not expenses incurred in gaining your assessable income. That is, the course does not have the 'essential character' of an income-producing expense. The course has an insufficient connection with the activities by which the business currently gains its income.

It is acknowledged that some of the skills and knowledge may help in your business, however, the course will provide skills and knowledge related to future activities for the business and help to obtain future business income and not in gaining or producing your current assessable income. The nexus to your current business activities is too remote. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997. 

Furthermore, much of the course focuses aspects that are capital in nature and therefore not deductible under section 8-1 of the ITAA 1997. The improving aspect of the course covers topics such as managing your time, cost and quality and how to negotiate. Much of the topics covered do not directly relate to the repairs and maintenance of your rental property. The skills and knowledge obtained from the course is more general in nature and not sufficiently connected to your assessable rental income. Therefore no deduction is allowed.

As the course does not have a sufficient connection to your business activities or rental property, no deduction is allowed for the course fees or the associated travel and accommodation expenses.

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