Yan v Commissioner of Taxation

[2009] AATA 0377

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(Decision by: B.H. Pascoe, Senior Member)

Yan
vCommissioner of Taxation

Tribunal:

Member:
B.H. Pascoe, Senior Member

Subject References:
Income Tax
education expenses
work related
proportion of cash incurred in courses of study
whether allowable deduction
Master of Applied Commerce (Accounting)
Graduate Certificate of Wealth Management

Legislative References:
Income Tax Assessment Act 1997 - s 8-1

Case References:
Federal Commissioner of Taxation v Hatchett - (1971) 2 ATR 557
Federal Commissioner of Taxation v Maddalena - (1971) 2 ATR 541
Assefa and Commissioner of Taxation - [2009] AATA 2

Hearing date: 4 March 2009
Decision date: 22 May 2009

Melbourne

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Decision by:
B.H. Pascoe, Senior Member

1. This is an application to review a decision of the respondent to disallow an objection to the income tax assessment of the applicant for the year ended 30 June 2007. The objection was against the disallowance as a deduction of the amount of $13,175 claimed as work related education expenses.

2. At he hearing, the applicant, Ms Y Yan, was unrepresented. The respondent was represented by Mr A Nicholas, an officer of the respondent. Evidence was given by Ms Yan and Ms J Drake, the manager, sole director and owner of JK Enterprises Pty Ltd, the employer of Ms Yan during the relevant period.

3. Ms Yan came to Australia in July 2005 to enrol at the University of Melbourne for a Masters of Applied Commerce in International Business. She had an undergraduate degree in Information Management Systems. At the end of 2005 she transferred to a Master of Applied Commerce in Accounting. In February 2007 she enrolled at Deakin University in a Graduate Certificate of Wealth Management. From 30 June 2006 to 26 February 2007 she was employed full time by JK Enterprises Pty Ltd, trading as Arthur Murray Franchised Dance Studios (Arthur Murray) as an accounts manager and personal assistant to Ms Drake. From 26 February 2007 to 30 June 2007 she reverted to part-time employment with Arthur Murray.

4. After lodging the return, Ms Yan was requested to provide details of the $13,175 claimed. In her response she listed expenditure relating to the two courses totalling $14,626. She stated the connection between the expenditure and her employment as:

The study of accounting improves my skills and knowledge of accounting practice I engage as accounts manager.

The study at Deakin University of Retirement Income Stream offered me great knowledge on tax issues and superannuation. Although studied three subjects only this one relates with my work.

The details of the expenditure of $14,626 were provided in this response. In providing further information after the objection, the expenditure was said to be $14,411. The comparison was:

In a subsequent letter of 28 November 2008, Ms Yan stated that she accepted that within one subject at Melbourne University some topics were not relevant to her work and within the one subject she was claiming in relation to the Deakin University course a similar position arose. As a result she reduced her claim by 3/11 of the fees for those two subjects, or $1,520, making the amount claimed as $12,891.

5. In effect, the claim for deduction by Ms Yan is a claim for part of the cost of studying four subjects out of six actually studied in the course of seeking to obtain a Master of Applied Commerce and a Graduate Certificate of Wealth Management on the basis that some subjects and some topics within some subjects were relevant to her employment.

6. In an attached letter to the initial response to a request for details, Ms Drake as Managing Director of Arthur Murray set out the major duties of Ms Yan as including:

Accounting Aspects

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Budgeting and cost control, account payable and receivable, debt collection, petty cash and banking, bookkeeping, BAS, PAYG, MYOB maintenance and processing the end of month reconciliations.

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Responsible for preparation and analysis of weekly management, income and expenses reporting.

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Working closely with the external Accountant, regularly liaising on tax issues and employee entitlements etc.

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Processing weekly end-to-end payroll for around 6-8 staff.

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Administration of superannuation and work cover.

Personal Assistant Aspects

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Co-ordinating and developing relationships with service providers, suppliers and customers; assisting and liaising with various members of the organisation.

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Organising international and inter-state schedule, travel and accommodation.

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Daily update of client information databases to ensure accurate records.

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Responsible for purchase orders, studio supplies and associated procedures.

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Provide HR administrative support.

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Other general administration tasks as required by the General Manager.

7. In her various written responses to questions raised by the respondent in dealing with her claim and in her evidence at the hearing, Ms Yan sought to explain the relevance of the studies to her employment. In particular she said that, at the commencement of her employment, she knew nothing about superannuation. Subsequently, there was a superannuation audit of the company's contributions by the Australian Taxation Office. She maintained that her study of the subject Retirement Income Streams within the Graduate Certificate of Wealth Management provided her with the essential knowledge of superannuation so as to deal with issues arising in her employment responsibilities. The subjects within the Masters course which she maintained were relevant to her employment were Strategic Cost Management, Corporate Reporting and Legal Issues for Accountants. In relation to the first of these, Ms Yan said her duties included Review current processes and advise/implement any improvements required and assist Managing Director with planning and controlling organisational activities. In relation to Corporate Reporting, Ms Yan said that her duties included looking at technical issues relating to the application of accounting standards and monthly, quarterly and yearly accounts reporting to external accountants. In relation to Legal Issues for Accountants, Ms Yan stated that it is essential to obtain an overview on legal problems related to business contracts and the regulation of company due to the special nature of the business as both a franchisee and head franchisee, where I have been required to assist with the legal issues with the formulation of new franchises, to understand legal documents such as franchise agreement and royalty policies and to deal with intercompany contractual liabilities.

8. Ms Yan maintained that she was the only person responsible for the financial paperwork of Arthur Murray. She said that her employer was aware of her study and supportive of that study, particularly in the change to part time as a result of her study requirements. While she acknowledged that there were no opportunities for promotion within such a small company, she said that she did receive a pay increase from $20 to $26 per hour in February 2007 when she changed to part time work. Ms Yan said that, prior to 30 June 2007, she had no thoughts of leaving her employment. However, she did leave Arthur Murray in late 2007 to become a financial planner with a financial advice company. She maintained that, while her employment with Arthur Murray was not dependent on continuing a course of study, she believed that it was a significant factor in her being employed and significant in her performance of the duties of employment by maintaining and improving her skills.

9. In her evidence, Ms Drake accepted that it was possible that Ms Yan obtained some benefit from her studies in performing her role. However, the only specific matter which she could identify was her ability to operate MYOB accounting software in house where it had been outsourced previously. In relation to Ms Yan's claim regarding her involvement with superannuation, Ms Drake said that Ms Yan did not have any role in remedying problems arising from the superannuation audit which was done by the external accountants and her role was limited to administration of superannuation contributions. She also denied that Ms Yan's role included reviewing processes or assisting with planning for Arthur Murray. She did acknowledge that Ms Yan had sometimes suggested an alternative supplier for such things as water or toilet paper. Ms Drake did not accept that Ms Yan had any involvement in the application of accounting standards, her role being limited to providing accounts reporting to the external accountants. Ms Drake was adamant that Ms Yan had no role in relation to legal issues of Arthur Murray. Ms Drake said that Ms Yan regularly sought pay increases. She said that she did agree to a pay increase in February 2007 but as a normal consequence of Ms Yan having a better understanding of the Arthur Murray business after eight months, some improvement in her performance and a consideration of the cost of replacing her. Ms Drake said that she was aware that Ms Yan was ambitious, likely to become over qualified for the job and likely to move on to other employment.

10. It was submitted for the respondent that the expenditure claimed by Ms Yan did not have the essential character of an income producing expense, was not relevant and incidental to her income producing activities and was incurred at a point too soon to be properly regarded as incurred in gaining assessable income. It was said that her employment income was not based on the exercise of a skill which was improved or maintained by education expenses and there was no evidence that the course of study could or would lead to an increase in income. It was argued, further, that the subjects in relation to which the deductions were claimed were at a significantly higher level than could be said to be relevant to the employment duties so that they had minimal or no connection with those duties.

11. In response Ms Yan continued to argue that there was a connection between the costs relating to the subjects claimed and her employment duties. She sought to distinguish decisions such as in Federal Commissioner of Taxation v Hatchett (1971) 2 ATR 557 on the grounds that, here, she was claiming only the costs relating to subjects relevant to her employment not the whole cost of the course of study leading to the degree or graduate certificate.

12. It is relevant to note that Ms Yan enrolled in and commenced a course of study for her Masters degree well prior to commencing employment with Arthur Murray and her decision to undertake that course of study was clearly unrelated to that subsequent employment. It is clear, also, that this case has been put differently to other somewhat similar claims in that Ms Yan is arguing that she can claim a proportionate part of the total costs of undertaking the study of a subject based on the part of the study which is said to be relevant to employment and exclude the part which is not relevant. In my view this approach is not open. The costs which Ms Yan incurred were for the study of the required subjects included in a course of study in order to be awarded a Masters of Applied Commerce/Accounting and a Graduate Certificate of Wealth Management.

13. It is clear from the evidence including the full details of the courses and subjects that the overall content of both courses was at a level well beyond those that would be relevant to the duties of Ms Yan in her employment with Arthur Murray. While it is accepted that some part of these studies may have allowed her to be more efficient in her work, the expenses claimed are very much of the nature of those disallowed by the High Court in Hatchett's case (supra) where Menzies J said:

I am not able to find any connexion between the payment of fees and the assessable income of the taxpayer beyond the circumstance, which I take to be self-evident, that a teacher who has pursued university studies is likely to be a better teacher than if he had not done so and is therefore more likely to obtain promotion within the department. In my opinion this general consideration is not enough to make the fees deductible; there must be a perceived connexion between the outgoing and assessable income.

I am satisfied on the evidence of Ms Drake that the course of study was not a requirement of her employment, was not a significant factor in gaining employment and did not lead to any increase of income. I am satisfied also that Ms Yan somewhat exaggerated the duties within the employment in an effort to better relate them to the subjects or topics for which she claimed a deduction.

14. Given the courses of study which Ms Yan was undertaking in the relevant year I am satisfied that the expenditure was incurred to enable Ms Yan to obtain two new forms of qualification to better suit her to obtain a new and different income earning activity. It is more in common with cases such as Hatchett, Federal Commissioner of Taxation v Maddalena (1971) 2 ATR 541 and Re Assefa v Commissioner of Taxation [2009] AATA 2 where it was said that the expenditure was incurred primarily for the purposes of opening up or qualifying for a new and, possibly, different income earning activity and did not have the necessary connection with the current income earning activity. In my view it is necessary to look at the purpose of the study as a whole and not seek to apportion a part of a cost in an effort to relate some part of the course of study to income earning activities. Here, I am satisfied that the costs incurred were to obtain the additional qualification to enable Ms Yan to obtain different and more highly paid employment which, in fact, she was subsequently able to do.

15. It follows from the foregoing that the decision to disallow the expenses claimed should be affirmed.