Edited version of your written advice

Authorisation Number: 1012831421146

Date of advice: 30 June 2015

Ruling

Subject: Self-education

Question

Are you able to claim a deduction for the costs of undertaking a course to gain a specialised licence as work related self-education expenses?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on:

1 July 2014

Relevant facts and circumstances

You are employed as a professional.

You intend to complete a specialised course to gain the qualifications that will allow you to be employed in your particular field and earn a higher income in the industry.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 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, or relate to the earning of exempt income.

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.

Paragraphs 13 and 14 of TR 98/9 provide that self-education expenses will satisfy the requirements of section 8-1 of the ITAA 1997 if:

• a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge; or

• 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 their current income-earning activities in the future.

Therefore, provided there is sufficient connection between your course of self-education and your current income earning activities, you are entitled to claim a deduction for your self-education expenses.

However, paragraph 15 of TR 98/9, provides that self-education expenses will not be deductible if the study is intended to:

• enable you to get employment;

• enable you to obtain new employment; or

• to open up a new income-earning activity (whether in business or in your current employment).

This includes studies relating to a particular profession, occupation or field of employment in which a taxpayer is not yet engaged. The expense is considered to be 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; 2 ATR 541).

In your case you are studying a course whilst employed as professional. On successful completion of the course you will have a specialised licence and it is your intention to change from being a non-flying aircrew person to the position of a commercial pilot.

Studdert's Case

In your request for a private binding ruling you have made reference to the case of FC of T v. Studdert 91 ATC 5006; (1991) 22 ATR 762 (Studdert's case).

In Studdert's case, the taxpayer, a flight engineer, sought a deduction for expenses incurred on light aircraft flying lessons leading to a private pilot licence. The Administrative Appeals Tribunal (AAT) (91 ATC 2007; (1991) 22 ATR 3042) at first instance was prepared to accept that it was part of Mr Studdert's duties to understand the overall workings of aircraft flight. The AAT allowed the expenditure on the basis that the lessons improved his proficiency in those duties. It also found that Mr Studdert rightly believed that possession of the pilot licence would assist him in promotion to higher grades as an engineer, although the AAT did not consider it necessary to base its decision on this finding.

On appeal to the Federal Court, Hill J substantially agreed with the decision of the AAT. His Honour found that the expenses were relevant and incidental to the activities as flight engineer that directly produced Mr Studdert'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. If necessary, his Honour would also have supported his decision with the finding that flying proficiency would assist Mr Studdert in promotion to higher grades in his current job (91 ATC 5006 at 5015-5016; (1991) 22 ATR 762 at 772).

Your case differs from that of Studdert in that in undertaking the private pilot licence course the AAT found that the lessons improved Studdert's proficiency in his current engineering duties and that this would assist him to gain promotions to higher grades as an engineer. However, in your case you are undertaking the course to enable you to change from being a non-flying aircrew person to a pilot; this change is not consistent with Studdert's case as Studdert sought advancement in his current role as an engineer.

Assefa's Case

In the case of Assefa v. FC of T [2009] AATA 2 (Assefa's case), it was considered whether studying a course of education in order to advance to a higher classification of nursing was opening up a new income earning capacity. The taxpayer in this case was employed as an assistant in nursing and a care service employee while studying a Bachelor of Nursing degree.

The Administrative Appeals Tribunal held in Assefa's case that no deduction was allowable for the self-education expenses. It was determined that there was a significant difference between the position of enrolled nurse and registered nurse on one hand, and personal care assistant/nursing assistant on the other. The taxpayer was not considered to be incurring the expenditure in gaining or producing her assessable income, but was studying towards their initial qualification as a registered nurse.

Your case is similar to Assefa's case in that although the knowledge gained from completing a commercial pilot licence course may be of some assistance to you in your current employment duties (navigation, communications, task co-ordination etc.); this is merely incidental to the main purpose for undertaking the course, which is to become a fully qualified commercial pilot. Furthermore, the subjects studied will provide you with skills and abilities far in advance of those that are required in your current employment duties.

Therefore, it is considered that the study does not have the required connection to your current income-earning activities consistent with those views expressed in Assefa's case. The knowledge, skills and abilities you will have gained from completion of the course will assist you in opening up a new income earning activity as a qualified commercial pilot and therefore they have been incurred at a point to soon.

Accordingly, you are not entitled to a deduction for expenses incurred in gaining a specialised licence, 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).