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Edited version of your written advice
Authorisation Number: 1013086630734
Date of advice: 8 September 2016
Ruling
Subject: Self-education expenses
Question
Are you entitled to a deduction for your self-education expenses?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2016
Year ending 30 June 2017
The scheme commences on
1 July 2015
Relevant facts and circumstances
Your current income is derived from a superannuation income stream.
The amount you receive has been calculated with reference to your previous salary received and is indexed.
You declare your pension as assessable income in your income tax return.
You are currently undertaking a further education course which will enable you to maintain and update your skillset.
You intend to return to full-time employment after you complete your course. The course will enable you to re-enter the workforce at a higher pay rate.
You will incur self-education expenses in the relevant financial years.
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 (ITAA 1997). This section allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are of a capital, private or domestic 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 expense.
The Commissioner's view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses. In accordance with TR 98/9, expenses of self-education will satisfy the requirements of section 8-1 of 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 (FC of T v. Finn (1961) 106 CLR 60;(1961 12 ATD 348) (Finn's Case); 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 (FC of T v. Hatchett (1971) 125 CLR 494; 71ATC 4184; (1971) 2ATR 557 (Hatchett's Case).
The phrase 'current income-earning activities' refers to the income-earning activities of the taxpayer at the time the self-education expenses were incurred.
However, 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).
Paragraph 48 of TR 98/9 refers to the decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena's Case). That case established that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to get employment or to obtain new employment. The expenses would be incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.
To determine whether your self-education expenses are deductible, 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.
Self-education courses are generally undertaken to further yourself in a position that you already hold.
In your case, your current income is derived from a superannuation income stream. Even though the amount you receive has been calculated with reference to your previous position and skillset, it is not a requirement that you engage, in self-education activities, to continue to receive the pension, nor does it relate to the indexation of the amounts you will receive in the future.
Although the course is in a field that you were previously employed in, the course is to help you maintain your previous employment skills and to keep you updated to help you obtain future employment. Applying the Maddalena principle above, your self-education expenses were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. Therefore, you are not entitled to a deduction for these expenses.
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