Edited version of your written advice

Authorisation Number: 1051407641815

Date of advice: 1 August 2018

Ruling

Subject: Self-education expenses

Question

Are the costs that you incurred in undertaking a Graduate Diploma of XYZ an allowable deduction?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2018

The scheme commenced on

1 July 2017

Relevant facts

You graduated in late 2017.

You first applied to enrol in the Graduate Diploma of XYZ course in late 2017 for the course starting in early 2018. However you were not able to make arrangements at your work in your previous position. You had to delay starting the course until arrangements could be made with your then supervisor.

You were offered a new position in early 2018 and you commenced working soon after in the full time position.

You commenced the Graduate Diploma of XYZ in early 2018. This course is online, fulltime and had a requirement for you to attend campus for some days of the course. Your employer gave you days study leave in early 2018 to complete this onsite component.

The aim of the course is to provide you with practical, day-to-day skills as an entry-level legal practitioner. The course is structured in a practical based learning format.

The course has three components – coursework, Professional Development and work experience.

The subjects were provided. These skills are fundamental to an entry-level XYZ and will substantially improve your work.

The work experience component includes completing 75 days of work experience. Your work at the XX qualifies as work experience for this component.

Your supervisor allows you to finish work early on the days you undertake oral assessment for your course. There were x oral assessments you undertook and you took approximately three hours off work each time. The course finished in mid- 2018.

You have not changed your position since starting the course and are not hoping to achieve a promotion or a new position by undertaking the course.

You paid for the course costs in early 2018 and did not receive any reimbursement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Detailed reasoning

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, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it.

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 (Lunneys 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 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, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayers current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161).

In Case Z1 92 ATC 101; AAT Case 7541 (1992) 22 ATR 3549, the applicant, a public service clerk who completed a 6 month course at the college of law, claimed a deduction for expenses that led to her admission as a solicitor. The Tribunal held the admission fees were of a capital nature and were, therefore, not an allowable deduction. The admission expenses secured the applicant a 'lasting advantage'. They also secured her the status of a solicitor that was considered a 'profit yielding subject' (Sun Newspapers Ltd and Associated Newspapers Ltd v. FC of T (1938) 61 CLR 337; 5 ATD 23; [1939] ALR 10). In applying Maddalena, the Tribunal held that the admission expenses were also incurred in getting, not in doing, work as an employee. They came at a point too soon to be properly regarded as incurred in gaining assessable income (paragraph 35 of Taxation Ruling TR 95/9 Income tax: employee lawyers - allowances, reimbursements and work-related deductions).

In your case, you enrolled in the course prior to you having your current employment position. Your position is therefore not the reason why you are undertaking the course. Your position provides you with the relevant work experience component of the course.

Although the Graduate Diploma of XYZ may help you with your current position, the course goes beyond this and gives you the qualification required to be able to work as an XYZ.

It is acknowledged that you will have the same position after the completion of your course and your employer is encouraging your study. However this is not enough to change your studies into an allowable deduction.

It remains that the course will help open up a new income earning activity. That is, completing this course is part of the formal qualifications required to be admitted to practice as a legal practitioner.

It is considered that there is an insufficient connection between the skills and knowledge required in your current duties and your course. The expense of completing your Graduate Diploma of XYZ is incurred at a point too soon to be regarded as having been incurred in gaining your assessable income and you are not entitled to a deduction for the associated expense under section 8-1 of the ITAA 1997.

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