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Edited version of your private ruling
Authorisation Number: 1051555799879
Date of advice: 8 August 2019
Subject: Self-education expenses
Are you able to deduct your self-education expenses in your 20XX tax return?
Are you able to deduct your self-education expenses in your 20XX tax return?
This ruling applies for the following period:
Year ended 30 June 2018
Year ended 30 June 2019
The scheme commences on:
1 July 2017
Relevant facts and circumstances
You commenced work in an area where you prepared legal documents and actions involving the collection of debts.
You registered for Graduate Certificate in XX to expand you skills in order to perform your role and also have sufficient knowledge to support my role as mentor to staff.
You completed one course under the FEE-HELP facility.
You later obtained a promotion to work in another area for the same employer. You are now responsible for conducting risk review and audits.
You enrolled into a second course under the FEE-HELP facility after gaining your promotion.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
ATO view documents
Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business.
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, except where the outgoings are of a capital, private or domestic nature.
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),
· 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).
Self-education expenses are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities.
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).
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.
No deduction is allowable for self-education expenses if the study is designed to enable the 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. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are 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; (1971) 2 ATR 541) (Maddalena's case).
Where a course is too general in relation to your current employment duties, the necessary connection between the expense and your income earning activity does not exist and no deduction is allowed.
Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.
To determine whether circumstances exist which would support your deduction for your course, 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.
In Case R60, 84 ATC 447 the Board of Review disallowed self-education expenses. The taxpayer was a public servant and the position required relevant experience or some legal training (which the taxpayer already had) but not legal qualifications as such. In the circumstances, the continuation of the taxpayer's legal studies could not be characterised as a relevant incident of or as part and parcel of his employment. While the legal studies were specified as an advantage for the position held and the taxpayer's legal training was relied on by the branch he was in, if the studies were discontinued, the branch would not have reacted at all. The branch head saw the encouragement given to the taxpayer as part and parcel of normal staff development.
In Case Z1 22 ATR 3549; 92 ATC 101, a public service clerk studying for a law degree later obtained a legal officer position in the public service. The qualifications as a solicitor were not necessary for her current employment. The expenses were held to have been incurred in getting work as a legal officer not in doing work as an employee and therefore not deductible. At all times the taxpayer was employed in a position where such qualifications were not necessary although the gaining of such qualifications were encouraged. The course was pursued by the taxpayer of her own choice and for her own self-improvement.
In the 20XX financial year your situation is comparable to the above cases. You already had skills and experience as an officer.
While some of the subjects may provide knowledge and skill that are used in your role, this role does not require qualifications. The course will provide you with qualifications that are far in excess of the requirements of the position you held whilst completing your course in the 20XX financial year and cannot be said to be sufficiently related to your employment duties.
Although the course may have some benefit to you in your current work, that benefit is only incidental as your studies are providing you with knowledge and skill in a position you are not currently employed. Your course is designed more for your future role rather than to enhance your current income earning activities.
It is considered that the decision in Maddalena's case applies to your situation. Your studies will assist you to provide taxation law in the future for your employer and have been incurred at a point too soon. As highlighted above, where a course is undertaken to open up another source of income earning potential from the qualification, a deduction is not generally allowable. Your studies will give you new qualifications and enable you to obtain employment in a different field. The studies are regarded as not being sufficiently relevant to your income-earning activities.
Consequently, the self-education expenses incurred in the 20XX financial year in undertaking the course does not have the necessary and relevant connection with the earning of your assessable income. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997 for the 20XX financial year.
In 20XX financial year, it is accepted that the courses you undertook, maintained and enhanced the knowledge and skills that were required to perform your current employment.
The course provides skills that can be utilised in your area of work, that you have been working in since January 20XX and has a nexus to your income earning activities.
Consequently, the training course had the necessary and relevant connection with the earning of your assessable income and is therefore deductible under section 8-1 of the ITAA 1997.
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