Edited version of private advice

Authorisation Number: 1051543604129

Date of advice: 15 July 2019

Ruling

Subject: Income tax - self-education expenses

Question

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

Answer

Yes. Your self-education expenses are deductible, as it is accepted the study meets the requirements detailed in Taxation Ruling TR 98/9. Further information about self-education expenses can be found by searching 'QC 31970' on ato.gov.au

This ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You have a degree in geology.

You accepted employment with XYZ in January 20XX while you were living abroad.

A condition of accepting employment with XYZ was that they agreed to support your intention to complete a relevant course.

You moved back to Australia and commenced work with XYZ in March 20XX.

In May of the same year, you were promoted to head up a number of wholly owned subsidiaries as General Manager.

You applied for the relevant course in June of that year.

Your intention for undertaking the course was to enhance your skills and knowledge that would assist you in your current role at XYZ. You also believe that the course will likely result in a promotion or an increase in your income from your current work activities.

From August of the same year to June of the following year you made several payments for the entire course fees.

To complete the course you travelled overseas to various locations to complete the relevant course. You incurred travel expenses relating to the course.

You will complete the course in December 20XX.

You have been informally notified by your employer that the organisation will be undergoing a restructure and that you will most likely be made redundant in August 20XX. You have not yet received any formal notification of the proposed redundancy.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Taxation Ruling TR 98/9

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 the course of gaining or producing the assessable income, but are not allowable to the extent that they are of a capital, private or domestic nature.

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:

·  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);

·  there must be a connection 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)

·  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 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).

In Thomas v FC of T (2015) ATC10-404, [2015] AATA 687 (Thomas's case), the taxpayer was an associate director in the private equity investment team at National Australia Bank (NAB). During that time, he decided to undertake further study on a full-time basis. NAB was generally supportive of the taxpayer's intentions for further study. The taxpayer applied for and was accepted into an relevant course at Ecole des Hautes Etudes Commerciales de Paris (HEC Paris). A payment agreement was signed by the taxpayer, with his father as guarantor. The agreement stated that it was a commitment to pay the course fees in three instalments, the first of which was non-refundable. Just after the taxpayer had paid for his flights, visa and the first instalment of fees he was made redundant by NAB. The Commissioner accepted that the money paid for the flights and the visa were incurred when they were paid, prior to the taxpayer being unemployed, and an allowable deduction. The AAT held that the taxpayer had not incurred the second and third instalments while employed as the commitment to pay was not definite. Only the first instalment of fees was an allowable deduction as it was the only amount deemed non-refundable and incurred in gaining or producing assessable income.

The principle arising from this case is that where the self-education expense is incurred during the relevant related employment, the expense is deductible. 'Incurred' covers both the situation where payment is actually made and where a commitment to pay is definite, although payment itself may not occur during the relevant employment.

Applied to your circumstances

At the time you enrolled in the relevant course you were employed by XYZ and it is accepted that the relevant course would enhance your existing skills and knowledge as required in that position. The course would also likely lead to an increase in your assessable income. This satisfies the test of the expense being connected to your assessable income at the time.

You have been informally notified by your employer that the organisation will be undergoing a restructure and that you will most likely be made redundant in August 20XX. However, as discussed above, course fees paid prior to being made redundant were considered to be deductible in Thomas's case.

In your case, at the time you incurred the course fees, the course was directly related to your employment. Therefore the course fees plus the associated travel expenses incurred during the 20XX financial year are deductible expenses.

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