Edited version of private advice

Authorisation Number: 1051798528738

Date of advice: 22 January 2021

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 period

Year ended 30 June 2021

The scheme commenced on

1 July 2020

Relevant facts

You completed a Diploma course in xxx.

You work part-time. You started in this position in xxxx.

In xxxx you commenced a Bachelor course of study. You are studying part time and hope to complete your degree in xxxx.

You are doing this course to upgrade your qualifications and improve your skills and knowledge.

You study in your own time. Your employer does not provide any financial support or paid study leave or other support for your study.

The course will help with your current duties by improving your skills and knowledge.

You have received exemptions for eight of the units due to your previous Diploma studies completed. You may also get further exemptions based on work experience.

On the completion of your Bachelor degree, you are hoping to have a position with the same employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings 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.

The deductibility of self-education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for your course fees, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable 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. 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 to enable a 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). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

In Case Z1 92 ATC 101; AAT Case 7541 (1992) 22 ATR 3549, a legal officer with the public service was denied a deduction for the costs of a six-month pre-admission course at the College of Law as the course was not "part and parcel'' of her employment. To satisfy the connection between the college expenses and the gaining of assessable income, the applicant must show that there is an explicit or implicit condition of the office that the expenses be incurred. The qualifications as a solicitor were not necessary for the current position, although the gaining of such qualifications was encouraged. It was not sufficient to say that the payment of the college expenses enhanced her ability to perform the duties of her employment.

In 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 activity. The taxpayer in this case is employed as a personal care assistant while studying to become an enrolled nurse.

The AAT 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 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 an enrolled nurse.

Similarly, a nurse studying a Bachelor of Medicine would not be entitled to a deduction for any expenses in relation to the course. Although the medical degree would assist them in their current employment as a nurse the course is designed to open up a new income-earning activity as a doctor. This is the case even if the nurse subsequently remained with the same employer on completion of the course.

To determine whether your self-education expenses are deductible, the essential character of the expenditure must be considered.

Although you are currently working in the field, you are not currently a qualified professional. Upon the successful completion of your Bachelor studies you will become a qualified professional. This is regarded as opening up a new income-earning activity.

Once you are qualified you will be able to fulfil a different role to your current position.

It is acknowledged that the Bachelor degree will assist in your current employment, however the course is designed to open up a new income earning activity as a professional. This is so, even if you remain in your current role with the same employer.

The Bachelor studies will help you obtain future work as a professional. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997.

Other information

Please note that even if there was a sufficient nexus between your studies and your current employment position, HECS-HELP fees are specifically denied as an allowable deduction under section 26-20 of the ITAA 1997. Repayment amounts for a Higher Education Loan Program (HELP) debt or a Student Financial Supplement Scheme (SFSS) debt are also not deductible under section 26-20.

Therefore, if your course fees come under the above schemes, you cannot claim the course fees for your studies as a self-education deduction under section 8-1 of the ITAA 1997, as it is specifically denied under section 26-20 of the ITAA 1997. This is the case regardless of whether the course fees are deferred or paid up front.

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).