Edited version of private ruling

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Ruling

Subject: Self-education expenses

Are you entitled to deductions for the cost of aircraft hire, instructor hire, landing fees, and maintaining current aviation maps, charts, references and manuals in relation to your private flying expenses?

Yes.

This ruling applies for the following period:

1 July 2009 to 30 June 2013.

The scheme commenced on:

1 July 2009.

Relevant facts:

You are employed by a commercial airline as a co-pilot.

You hold a Commercial Pilots Licence (CPL) but need to obtain an Air Transport Pilot's Licence (ATPL) before you can be promoted to command positions on larger aircraft.

Not having an ATPL restricts your earning capacity because pilots of larger aircraft types are paid more by your employer.

One of the criteria to obtain an ATPL is to have logged at least 250 hours as a 'pilot in command'.

You cannot achieve the required 'pilot in command' time required for an ATPL in your current role because you can only log co-pilot time, not command time.

For professional development, and at the recommendation of several of your employer's trainers, you have undertaken private flying in light aircraft.

The private flying you undertake is solely for the purpose of assisting you to obtain an ATPL. There is no recreational aspect to this flying.

All the private flying you do will count as 'pilot in command time' towards your ATPL. It also allows you to maintain your piloting skills.

The private flying expenses you incur are for aircraft hire, instructor hire, landing fees, and for maintaining current aviation maps, charts, references and manuals.

You have the required documentation to substantiate any claims you make.

You do not receive any allowance or reimbursement from your employer or any other entity for any of the private flying expenses you incur and you undertake all private flying in your own time.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1936 Section 82A.

Reasons for decision

Deductions - general

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.

Deductions for self-education expenses

The Australian Taxation Office (ATO) view on when a deduction is allowable for self-education expenses is contained in Taxation Ruling TR 98/9.

TR 98/9 specifies that self-education expenses are deductible under section 8-1 of the ITAA 1997 if they have a relevant connection to the taxpayer's current income earning activities. Generally, a relevant connection between a self-education expense and a taxpayer's current income earning activities will exist in cases where:

· 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, and/or

· the study of a subject of self-education objectively leads to, or is likely to lead to, an increase in the taxpayer's income from his or her current income earning activities.

This view is echoed in Taxation Ruling 95/19, which contains the ATO view on work related deductions, including self-education expenses, specifically in relation to airline industry employees.

In relation to self-education expenses, TR 95/19 notes in paragraph 109 that:

· A deduction is allowable if the education is directly relevant to the taxpayer's current income-earning activities and that this will be the case where an airline industry employee's income earning activities are based on some skill or knowledge and the education enables the employee to maintain or improve that skill or knowledge.

· A deduction is allowable if the education is likely to lead to an increase in the airline industry employee's income from his or her current income earning activities.

· Self-education includes self-paced learning.

· Self-education expenses include fees, books and equipment.

In your case, you are employed as a co-pilot by a commercial airline. You hold a CPL but need to obtain an ATPL before you can be promoted to command positions on larger aircraft.

Not having an ATPL restricts your earning capacity because pilots of larger aircraft types are paid more by your employer.

You are unable to log the required hours in your current position so you have undertaken private flying in light aircraft specifically to obtain your ATPL.

All your private flying hours will count towards your ATPL and will allow you to maintain your piloting skills generally.

In relation to your private flying, you are incurring expenses for aircraft hire, instructor hire, landing fees, and for maintaining current aviation maps, charts, references and manuals. For the following reasons, we consider these expenses to be legitimate self-education expenses for which you are entitled to a deduction under section 8-1 of the ITAA 1997:

The private flying will allow you to improve your piloting skills in general. These skills are directly related to your employment as a co-pilot with a domestic airline, and therefore, to your current income earning activities.

Gaining an ATPL is likely to lead to an increase in the income you earn from your employer because you will be eligible for promotion to command positions on the larger aircraft in your employer's fleet.

Your private flying is considered a form of self-paced learning.

Apportionment of expenses

An expense is only deductible under section 8-1 when it has the essential character of an income-producing expense. In cases where an expense is partly income producing and partly private or domestic in nature, apportionment is necessary to determine the portion of the expense that can be deducted.

In relation to self-education expenses, paragraph 17 of TR 98/9 specifies that if the income producing purpose is merely incidental to a private purpose, only the portion of the expense which relates directly to the income producing purpose is allowable as a deduction.

In your case, you have stated all your private flying will be for the purpose of obtaining your ATPL. However, should any portion of your private flying be undertaken for private or domestic purposes, you will need to apportion your expenses to determine what can legitimately be claimed as a deduction.

Limit on deductibility of self-education expenses in some cases

Where a deduction is allowed for self-education expenses but the expense falls within the definition of 'expenses of self-education' in section 82A of the Income Tax Assessment Act 1936 (ITAA 1936), only the excess of the expenses over $250 is an allowable deduction.

'Expenses of self-education' are defined in section 82A of the ITAA 1936 as all expenses (other than HECS payments, Open Learning charges and debt repayments under the Tertiary Student Financial Supplement Scheme) necessarily incurred by a taxpayer in connection with a prescribed course of education. 'A prescribed course of education' is defined in section 82A of the ITAA 1936 as a course provided by a school, college, university or other place of education and undertaken by the taxpayer to gain qualifications for use in the carrying on of a profession, business or trade, or in the course of any employment.

In your case, you are not undertaking a prescribed course of education at a school, college, university or other place of education. Rather, you are undertaking private flying as a means of gaining your ATPL. Accordingly, whilst we consider the expenses to which this ruling relates to be self-education expenses, they do not fall within the definition of 'expenses of self-education'.

You are entitled to claim a deduction for the total of the expenses that relate directly to your income producing activity, not just the excess over $250.

Conclusion

The expenses to which this ruling relates are self-education expenses and you are entitled to a deduction for the full amount of those expenses to the extent that the expenses are not private or domestic in nature.