Edited version of private advice

Authorisation Number: 1051809962606

Date of advice: 2 March 2021

Ruling

Subject: Self-education

Question

Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenditure incurred in completing a self-development course?

Answer

No. You are not entitled to a deduction under section 8-1 of the ITAA 1997 as the expenditure incurred in attending the self-development course does not directly relate to your current income earning activities.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your employer is a sales company that provides products related to a specific profession.

In your role, you are responsible for product training and further education, case coverage, new business sales calls and client relationship management.

Upon commencement of employment with your current employer you were encouraged to continually self-improve. In light of this encouragement, you enrolled in and completed a six-month self-development course.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 82A

Reasons for decision

Section 8-1 of the 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.

Taxation Ruling TR 98/9 discusses the circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

At paragraph 42, TR 98/9 states:

If a course of study is too general in terms of the taxpayer's current income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances.

To determine whether circumstances exist which would support the deduction for a personal development course we must look to the 'essential character' of the expenditure. It is necessary to determine whether there is a sufficient nexus between the expenditure and the taxpayer's income-earning activities.

In Case U101 [1987] AATA 155; 87 ATC 616 (Case U101), Case V13 88 ATC 163 and Re Naglost v Commissioner of Taxation (Cth) [2001] AATA 1051; 2002 ATC 2008; (2001) 49 ATR 1028 (Naglost), the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses. Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently.

The AAT denied the claim and held that there was not a sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment.

This view is supported in Case V13 88 ATC 163. In this case, the taxpayer was a life assurance saleswoman. In an attempt to improve her selling skills, the taxpayer undertook, at considerable expense, a series of courses in communication, personal development and business skills. The taxpayer's claims for the cost of the course and for depreciation of books were disallowed by the Commissioner and her appeal to the objection was further disallowed by the AAT. In disallowing the claim P M Roach (Senior Member) indicated that he accepted that her studies contributed to her personal development in ways that gave her a greater self-confidence and a greater effectiveness in the arts of communication and there-by gave her a greater capacity to persuade others to follow courses proposed by her. He stated that despite these contentions, the courses undertaken were principally directed to the personal development of the individual and of her capacities. The courses under consideration were conducted at that level and were so closely and deeply involved with the individual person that they must be characterised as private.

Conversely, in Naglost the AAT allowed a partial deduction to a serving member of the Royal Australian Air Force (RAAF) who undertook a course of study at 'Mastery University'.

The taxpayer's duties included management responsibilities and the course of study was designed to enhance leadership, management capabilities and decision-making processes. Further, the course was approved by the taxpayer's employer and some expenses were reimbursed by the RAAF.

The AAT held that the expenditure was allowable as it was objectively considered the course would improve the taxpayer's proficiency in his employment, in particular his management responsibilities. Therefore, any expenditure on the course would be relevant and incidental to the taxpayer's income-producing activities.

The tribunal also found that whilst the fact the RAAF assisted the taxpayer to pay the course fees was not determinative of itself; it indicated that the RAAF regarded the course as relevant to the taxpayer's employment.

Naglost demonstrates that a personal development course will have the 'essential character' of an income-producing expense where a taxpayer can demonstrate a link, not only to skills and knowledge in general, but also to their current duties. Furthermore, where an employer subsidises that study, though not decisive in itself, that fact will lend even greater weight to self-education expenditure having a nexus with income earning activities.

Whilst we acknowledge that the course may have provided you with tools and skills which can be used in your employment the benefits are largely personal and private in nature. In other words, they were not a requirement of your employment duties.

Accordingly, all expenses incurred are considered to be more related to development of personal capacity which is considered to be private in nature. The course does not have sufficient direct nexus to your income earning activities and the expenses incurred are therefore not tax deductible.

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