Edited version of private advice

Authorisation Number: 1051967331916

Date of advice: 23 May 2022

Ruling

Subject: Self education expenses

Question

Are you entitled to claim all of your self-education expenses incurred in completing the course as deductions under section 8-1 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a casual employee.

You have a contract (the Contract) between you and Company A setting out the terms and conditions of your employment.

You received your qualifications overseas before moving to Australia.

Section 1.1 of the contract states the following:

• You will be employed by Company A on a Casual basis.

Section 1.2 of the contract states the following:

• The duties of this position are set out in the attached position description. You will be required to perform these duties, and any other duties Company A may assign you, having regard to your skills, training and experience.

Section 6.1 of the contract states the following:

• Your duties are contained in the attached position description, which forms part of these terms and may be varied from time to time. You may also be required to carry out other duties and responsibilities within your skills and competencies as reasonably directed from time to time.

Section 6.1 of the contract states the following:

• Every individual employee is required to maintain as current, their specific qualifications, as required for this role and detailed in the position description, whilst employed by Company A. Failure to maintain the appropriate qualifications as current, shall remove any obligation by the employer to pay remuneration or salary under this contract and shall also allow the employer to terminate the employment of the employee.

You commenced a course whilst working for Company A.

You expect to complete the course in a couple of years.

On the completion of the course, you hope to be contracted on a full-time basis.

The Overall Purpose of The Job (contained in the contract) and the Primary Duties & Responsibilities (contained in the position description) of the role have been taken into account.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

No. You cannot claim all of your self-education expenses as deductions in respect of the course as there is an insufficient connection between the units of study and your role as a casual employee with Company A.

Detailed reasoning

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 or relate to the earning of exempt income.

Taxation Ruling 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) sets out when an employee can deduct a work expense under section 8-1 of the ITAA 1997. The pivotal element of section 8-1 of the ITAA 1997 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'.

Paragraph 22 of TR 2020/1 provides:

'...the requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income.'

The High Court majority in Payne Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that:

'... to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income...'

Taxation Ruling 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR98/9) discusses the circumstances under which self-education expenses are allowable as a deduction.

Self-education expenses are deductible where:

• the taxpayer's income-earning activities are based on the exercise of a skill or specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge, or
• the study of the subject of self-education objectively leads to, or is likely to lead to, an increase in the taxpayers' income from their current income-earning activities in the future.

No deduction is allowable for self-education expenses if the study is:

• 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).

Several court cases have established the principles in determining the deductibility of self-education claims.

Deduction allowed

In FC of T v. Studdert 91 ATC 5006; (1991) 22 ATR 762 the taxpayer, a flight engineer, sought a deduction for expenses incurred on light aircraft flying lessons leading to a private pilot's licence. On appeal, Hill J found that the expenses were relevant and incidental to the activities as flight engineer that directly produced Mr Studdert's income. This finding was based on the facts that undertaking the lessons made him better equipped to perform his skilled job and better proficiency were a motivation for undertaking the lessons.

Paragraph 41 of TR 98/9 describes the example of Barry, a trainee accountant, who is studying commerce part-time at university. He is allowed a deduction for the costs associated with the course because the course enables Barry to maintain or increase the specific knowledge required in his current position and to carry out his duties more effectively.

Paragraph 42 of TR 98/9 goes on to say that if a course of study is too general in terms of the taxpayer's income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist meaning that no deduction for self-education expenses would be allowable under section 8-1 of the ITAA 1997. In Case Z42 92 ATC 381; AAT Case 8419 (1992) 24 ATR 1183, a senior newspaper journalist, whose duties involved interviewing people for feature articles and making presentations to potential advertisers, was allowed a deduction for the cost of a speech course because it was incurred in maintaining or increasing his ability in his current employment and therefore was necessarily incurred in carrying on that employment.

Deduction not allowed

FCT v. Maddalena (1971) 2 ATR 541; (1971) 45 ALJR 426; 71 ATC 4161, supports our view that no deduction is allowable for self-education expenses if the study is to enable the taxpayer to get employment, obtain new employment or to open up a new income-earning activity (whether in business or 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. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Paragraph 57 of TR 98/9 is an example of Shannon, who is undertaking a 4-year university degree in mining engineering and takes a job as a casual employee with a mining company during the end of year holiday period. It is the company's policy to take only students who are pursuing relevant studies. Shannon is not entitled to a deduction for the cost of the course because the study is designed to get future employment in the field. It is incurred at a point too soon.

Paragraph 59 of TR 98/9 relates the example of Joseph, currently employed as a clerk in a public service department. He would like to transfer to a position in another section of the department and undertakes a course of study designed to equip him with the skills needed in that position. The study is unrelated to the skills required in his current position and is not likely to lead to an increase in income. As the study is designed to enable Joseph to enter a new income-earning activity, no deduction is allowable.

Paragraph 62 of TR 98/9 describes the example of Desiree, a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist.

Case U109 87 ATC 657 demonstrates the principle that just because expenditure may lead to the taxpayer being 'better' at their employment does not necessarily mean that the expenditure is deductible. In that case the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He incurred expenditure to undertake a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites and attended a geological congress. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities and that the expenditure was not deductible.

Application to your circumstances

To determine whether circumstances exist which would support self-education deductions, it is necessary to determine whether there is a sufficient connection between the expenditure and your current income earning activities as a casual employee with Company A. Whether such a connection exists is a question of fact and to be determined by reference to all the facts of the particular case.

In your case, your claim for self-education relates to an alternate income earning activity and falls under the scope discussed in Maddalenas case.

In your case, you are undertaking a course and it is considered that there is an insufficient connection between the skills and knowledge required in your current duties and the course that you are undertaking.

Although you may gain some knowledge and skills from the subjects studied that could be of some assistance in your work, it is considered that the study is designed to enable you to open up a new income earning activity as a carpenter/trade assistant.

As the study is designed to enable you to open up a new income earning activity and there is insufficient nexus between the course of self-education and your current income earning activities, the self-education expenses associated with the course are not incurred in earning your assessable income.

Consequently, you are not entitled to a deduction for the expenses under section 8-1 of the ITAA 1997.

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).