Edited version of private advice

Authorisation Number: 1051808798402

Date of advice: 11 May 2021

Ruling

Subject: Self-education expenses

Question 1

Are you entitled to a deduction for tuition fees, other ancillary self-education expenses used in connection with studying Doctor of Clinical Dentistry (Speciality A) provided by Institution A (Course)?

Answer

Yes

Question 2

Are you entitled to a deduction for accommodation and meal expenses in connection to undertaking the Course in City B?

Answer

No

Question 3

Are you entitled to a deduction for relocation expenses from City A to City B prior to the commencement of the Course and relocation expenses from City B to City A after the conclusion of the Course?

Answer

No

Question 4

Are you entitled to a deduction for transport expenses for travel between City B and City A for clinical patient care and management?

Answer

No

Question 5

Are car trips between your accommodation in City B and various venues at which the Course takes place, as well as car trips between Course venues, "business trips" for logbook purposes deductible?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2021

Year ended 30 June 2022

Year ended 30 June 2023

Year ended 30 June 2024

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You graduated from Institution B with a Bachelor of Dental Science in XXXX.

Following graduation, you commenced practising as a dentist at the Practice which was owned and operated at the time by your parent.

In XXXX the Practice was purchased by Company A. You are the Director of Company A. Company A is owned by a discretionary trust controlled by you.

The Practice is located at suburb A of City A, State A.

The Practice operates X dental chairs with X dentists and X oral health specialist.

Your role in the Practice has changed over the years. In XXXX you worked approximately XX clinical hours per week. By contract, in XXXX your clinical hours are approximately XX hours per week and approximately XX hours per week on administration and management duties.

You earn an annual wage from the Practice.

Your income earning activities as a dentist in general practice are:

•         Simple restorative treatments such as fillings

•         Simple implant placement in surgically non-complicated sites

•         Simple dentures not requiring complex retention systems

•         Simple crowns, root canals, extractions, and splints within your Scope of Practice that do not require referral to Specialist A

To maintain registration with the Australian Health Practitioner Regulation Agency you are required to undertake continuing professional development.

In addition to undertaking professional development you are also engaged in teaching, examining, volunteering and additional director roles.

To expand your scope of practice and earning potential, you are undertaking postgraduate training by completing the Course

You provided a description of Speciality A.

The Dental Board of Australia defines Speciality A.

The Course duration is X years full time. The study mode is on-campus day.

The Course commenced Semester 1 on XX January XXXX.

You expect to complete the Course in December XXXX.

During the course you will be required to attend classes at multiple locations.

You are not paid for course work performed as a qualified dentist.

The Course is outlined on Institution A's website.

You say there is a possibility you will take an additional year of study following completion of the Course at another university/institution.

In order to complete the Course you moved to City B for a period of at least X years

You rented a 3 bedroom terrace house at Location B. You commenced a XX month lease on XX/XX/XXXX at $X per week.

Due to the length of the Course, you will be accompanied in City B by your family.

Your spouse will commute between City B and City A on occasions for work. The frequency of travel and duration of time spent at both locations will vary.

Your child is booked into childcare in City B for X days per week.

Prior to commencing the Course, you and your family lived at your 3 bedroom house located at Location A.

You vacated Location A and leased the property for a period of XX months.

You moved your possessions and rented a unit at Location C. Rental commenced on XX/XX/XXXX at $X per week. Rent was increased to $X per week from XX/XXXX. There is no formal lease agreement in place. You advise the agreement is for X years.

You rented Location C for cost savings, proximity to the Practice and no property maintenance burden.

You are currently managing patients who are midway through a comprehensive course of treatment at the Practice. While undertaking the Course you say you intend to continue offering care to these patients as your knowledge and skillset expands.

Since moving to City B to commence the Course, you have not travelled back to City A because you had classes for the Course and City A had a COVID-19 lock down.

City A was in lock down from XX/XX/XXXX to XX/XX/XXXX.

You say from XX/XX/XXXX your Course timetable is X days of full-time clinical commitments You will commence travel to City A in the second week of XX/XXXX on an at least X basis. Your work will involve X days clinical time.

You have not provided evidence to support the travel or work commitments.

Whilst you are undertaking the Course you will continue to own and manage the Practice offsite during your stay in City B.

You say you have no intention to sell the Practice and your intention is to return to City A permanently at conclusion of the Course.

You have your own vehicle in City B as you will need to travel between the City B accommodation and the venues where your studies will take place.

You provided a description of the expenses to be incurred in order to undertake the course

The Course will enable you to expand your clinical scope to provide a higher level of care, thereby generating higher income through the completion of more complex dental procedures to existing and new patients.

Further training in Speciality A is not expected to change the type of dentistry you will provide at the Practice. You will continue to provide services to the same type of patients, not restrict the Practice to referral only and continue as a general dentist but with an expanded skillset.

The Practice recently completed a renovation which included the addition of a dental laboratory and associated equipment which will support your expanded skill in Speciality A in due course.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Work-related self-education expenses

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 to the extent to which they are of a capital, private or domestic nature, or relate to the earning of exempt income.

Taxation Ruling 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9)discusses the circumstances under which self-education expenses are allowable as a deduction.

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 (paragraph 12 of TR 98/9 and referred to within FC of T v Finn (1961) 106 CLR 60 (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 (paragraph 13 TR 98/9 and referred to in the case of FC of T v Hatchett (1971) 125 CLR 494 (Hatchett's case)).

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 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 come at a point in time too soon to be regarded as being incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

In Case Z1 92 ATC 101; AAT Case 7541 (1991) 22 ATR 3549, a public service clerk studying for a law degree later obtained a legal officer position in the public service. Such expenses of self-education were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

As you mentioned in your application more relevant to your circumstances is FC of T v. Highfield 82 ATO 4463; (1982) 13 ATR 426 (Highfield). TR 98/9 examines this case in paragraph 60 and 61. In this case it was discussed whether expenses incurred by a dentist in general practice on a post-graduate degree in periodontics would be allowable if the study had been undertaken to become a specialist periodontist.

His Honour Justice Lee came to no final conclusion on the matter and recognised there were equally completing views.On the one hand, such expenses could be said to be allowable on the basis that the dentist was an independent contractor who was attempting to obtain contracts. On the other hand, the expenses would not be allowable because the dentist was attempting to carry on a different income-earning activity or business and would be in no different position from a person who undertakes study to obtain a job (82 ATC at 4474; 13 ATR at 439). We believe that the latter view is the correct application of section 8-1 (paragraph 61 of TR 98/9).

Part of the Commissioner's contentions in this case was that the respondent is not to be accepted in his assertion as to his motives for going abroad and attending the university and that the proper conclusion from all the evidence is that the respondent had made up his mind when he left for London to give up general practice and that he had decided to get the degree, acquire the necessary practical experience and then specialise in periodontics. Periodontics is a specialty in dentistry and a person registered as a periodontist is required to limit his practice to periodontics.

The view taken by Justice Lee of the evidence is that the respondent in setting off to acquire the degree considered that it would enable him to do more periodontic work in his general practice, which he would carry on and expand until circumstances might be favourable for him to take up practice as a specialist.

Application to your circumstances

You are currently earning your assessable income by working as a general dentist in the Practice which you also own and operate. You are completing postgraduate training in Speciality A. The Course will take X years to complete. Whilst completing the Course you will continue working in the Practice.

Based on an analysis of your circumstances we acknowledge that the learning outcomes, skills and competencies that the Course imparts and develops will be applied in your current work activities and that it is likely lead to an increase in income. Supporting factors are outlined

In the Highfield case, the Commissioner did not accept that the respondent had any intention of using the benefits of the knowledge acquired in obtaining the degree in his general practice or that the additional knowledge had any bearing upon the receipt of income from the general practice. Based on your information and circumstances, we do not believe this is the case in your situation.

Question 1

Detailed Reasoning

If the general tests under section 8-1 are met, certain types of expenses related to self-education are allowable deductions.

Paragraph 22 of TR 98/9 states:

You can deduct an amount, under section 40-25 of the ITAA 1997, for the decline in value of a depreciating asset that you held during an income year and used, or had installed ready for use, for a taxable purpose. If the subject of self-education enables you to maintain or improve skills or knowledge or is likely to lead to an increase in income from your current income-earning activity, you can deduct an amount for the decline in value of depreciating assets you use for self-education purposes. You must reduce your deduction by the extent to which you use the asset for a purpose other than a taxable purpose (subsection 40-25(2) of the ITAA 1997) or if you held it for only part of an income year.

As the Commissioner is satisfied the Course meets the conditions of section 8-1 of ITAA 1997 you can deduct an amount for the decline in value of equipment. However, you must reduce the deduction by the extent to which you use the assets for other than a taxable purpose. For example, if you use the asset 30% for private purposes and 70% for taxable purposes in an income year you reduce your deduction by 30%.

Paragraph 23 of TR 98/9 considers the following items as self-education expenses:

•         course or tuition fees of attending an educational institution, work-related conference or seminar, including student union fees

•         the cost of professional and trade journals, textbooks and stationery

As the general tests under section 8-1 are met, the tuition fees, textbooks, journals and stationery are allowable self-education deductions.

Question 2

Detailed reasoning

Whilst studying in City B, you will incur accommodation and food expenses. Expenditure on accommodation and food ordinarily has the character of a private or domestic expense. However, the occasion of the outgoing may operate to give the expenditure the essential character of an income-producing expense.

Paragraph 89 of TR 98/9 outlines:

Where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meal expenses incurred are deductible under section 8-1. (Examples include an overseas study tour or sabbatical, a work-related conference or seminar or attending an educational institution.) They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature because its occasion is the taxpayer's travel away from home on income-producing activities.

However, TR 98/9 goes on to state that expenditure on meals and accommodation incurred while undertaking a self-education activity will not be deductible where the taxpayer has established a new home. In these circumstances, the accommodation and meal expenses are considered to retain their inherently private nature.

Paragraph 93 of TR 98/9 lists the key factors to consider in order to determine whether a new home has been established. These factors include:

•         the total duration of the travel;

•         whether the taxpayer stays in one place or moves frequently from place to place;

•         the nature of the accommodation, e.g., hotel, motel, long term accommodation;

•         whether the taxpayer is accompanied by his or her family;

•         whether the taxpayer is maintaining a home at the previous location while away.

•         The fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private 'living expenses' in a series of Board of Review decisions: Case N13 13 TBRD (NS) 45; 10 CTBR (NS) Case 98; Case N16 13 TBRD (NS) 65; 10 CTBR (NS) Case 99; Case N19 13 TBRD (NS) 76; Case N20 13 TBRD (NS) 79; and

•         the frequency and duration of return trips to the previous location

The question of whether a new home has been established depends on all the facts. There is no one test to satisfy all the circumstances. TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. Whist recognising you are not travelling overseas to undertake the Course your situation has similarities to example 4 and example 5 which follow:

Example 4: James, a university lecturer, travels overseas for 12 months to undertake a studies program. He spends 10 months in the USA where he attends a university and 2 months based at an academic institution in the UK. He is accompanied by his wife and the family home in Australia is rented out while he is away. While in the USA, he resides with his wife in an apartment leased for the duration of their stay.

The facts indicate that James has established a new home in the USA for the period of his stay. He stayed in one place in leased accommodation with his wife for the 10-month period and the family home in Australia was rented out during the period he was away.

Example 5: Katherine travelled overseas for six months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

We have analysed your comments and circumstances against the key factors noted in paragraph 93 of TR 98/9 in order to determine whether you established a home in City B. Based on this analysis we have determined you have relocated to City B. Reasons were outlined:

•         You will be in City B for approximately X years studying a full time course which is an extended length of time.

•         For at least the first XX months of the Course you will be staying in a 3 bedroom house. This type of accommodation is like the nature of your family home prior to moving to City B.

•         You will be accompanied by your family to City B.

•         Your child is enrolled in care in City B.

•         You are not maintaining a home in City A as you have rented out your family home.

It is acknowledged on occasions you will be returning to City A to work in the Practice. However, this factor is not considered enough to outweigh the other factors that point to you having a home in City B while you are studying there.

Consistent with the principles established in TR 98/9, the Commissioner is satisfied that you have established a new place of residence for self-education purposes. Therefore, you are not entitled to claim a deduction relating to accommodation and meals. In these circumstances, expenditure is private in nature and not allowable under section 8-1 of the ITAA 1997.

Question 3

Detailed reasoning

The deductibility of relocation expenses falls for consideration under section 8-1 of the ITAA 1997.

When requested for a description and amount of the relocation costs you provided:

•         Removal costs to move to City B $X

•         Removal costs to move back to City A $X

Whilst a full breakup of the separate expenses and amounts making up the totals were not provided, we consider the removal costs to move to City B are private in nature and so cannot be claimed as a deduction.

In relation to returning to City A at the conclusion of the Course, relocation and removal expenses are generally not allowable deductions because the expenses are not incurred in gaining or producing assessable income.

Taxation Ruling IT 2614 Income tax and fringe benefits tax: employee expenses incurred on relocation of employment examines the deductibility of relocation expenses. The ruling states that expenses incurred in relocating to take up an appointment with a new or existing employer are not allowable deductions as they are private or domestic in nature. This is so, regardless of whether an allowance has been paid, or if the relocation was involuntary.

In general, all relocation expenses are a prerequisite to the earning of income in the same manner as are travel expenses to and from work. Such expenses put you in a position where you can earn income, but they happen at a point too soon to be regarded as being incurred in the course of gaining or producing assessable income (FC of T v. Maddalena (1971) 2ATR 541; (1971) 45 ALJR 426; 71 ATC 4161). These expenses are not deductible regardless of whether you are commencing a new employment or transferring within an existing employment.

Taxation Ruling IT 2481 Income tax: travelling expenses of an employee moving to a new locality of employment also discusses this expense. At paragraph 9 the ruling states the expenditure is not incurred in gaining or producing income and is not deductible as you are not travelling on work, but to work.

Question 4

Detailed reasoning

During your period of study in City B, you will return to City A to work on occasions as a dentist in the Practice. Taxation Ruling 2021/1 Income tax: when are deductions allowed for employees' transport expenses? sets out when an employee can deduct transport expenses under section 8-1 of the ITAA 1997.

TR 2021/1 outlines where the occasion of transport expenses can be found in the employee's employment duties, the expenses will be incurred in gaining or producing the employee's assessable income. Conversely, where the employee is travelling between home and a regular place of work transport expenses are not deductible.

Paragraph 28 of TR 2021/1 provides the usual position that the cost of travel between home and the employee's regular place of work is not deductible does not change merely because the employee's home is very distant (for example, requiring a flight) from their regular place of work. For example, an employee takes a job based wholly in Sydney but chooses to continue to live in Brisbane with their family and flies to their work in Sydney each week

Example 5 at paragraph 49 of TR 2021/1 illustrates transport expenses are not deductible where a taxpayer travels between home and a distant regular work location:

Isabelle is a specialist technician who lives in Brisbane. She works as an employee for a company based in Sydney on a part-time basis. On the days she is required to work (Wednesdays and Thursdays), she drives from her home in Brisbane to the airport, catches a flight to Sydney and then a taxi to her company's office. She stays overnight in Sydney on Wednesday night and returns home on Thursday evening. Isabelle's transport expenses (travel between her home and Brisbane airport, return flights from Brisbane to Sydney and taxis between Sydney airport and her office) are not deductible. Isabelle's travel is undertaken to put her in the position to commence her duties and the expenses are not incurred in gaining or producing her assessable income. The expenses are incurred as a necessary consequence of Isabelle choosing to live in Brisbane and work in Sydney and are a prerequisite to gaining or producing her assessable income. Isabelle's travel between her home and her regular workplace is also private in nature.

The Commissioner has determined you established a new home in City B for self-education purposes. It is clear your regular work location is City A. The transport expenses to be incurred are the consequence of you choosing to move to City B to study and continue to work in City A. The expenses are a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Therefore, expenses of this nature are private and are not deductible under section 8-1 of ITAA 1997.

Question 5

Detailed Reasoning

As per the principles in paragraph 160 of TR 98/9, expenses for travel in either direction between your home, being the City B property and your place of education being the multiple locations are allowable deductions.

For further information enter Quick Code reference QC 61642 D4 Work-related self-education expenses 2020 and QC 61639 D1 Work-related car expenses 2020 into the search function of the website ato.gov.au.

Other relevant comments

The deductibility of any work-related expenses are subject to the substantiation rules as outlined in Division 900 ITAA1997.

Documentation satisfying the requirements of section 900-15 or 900-120 of the ITAA 1997 is required to substantiate the expenses included in these claims.

Pursuant to sections 900-115 or 900-120 of the ITAA 1997, these expenses must be substantiated by a document setting out the following:

•         the name or business name of the supplier of the goods or service, or asset

•         the amount of the expense, or the cost of the asset

•         the nature of the goods or service, or asset

•         the day the expense was incurred, or asset was acquired, and

•         the day the document was made out.

For further information refer to ATO Practice Statement Law Administration PS LA 2005/7

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