Edited version of private ruling

Authorisation Number: 1011602936175

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Ruling

Subject: Self-education

Are you entitled to a deduction for self education expenses?

No.

This ruling applies for the following period

Year ending 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· an application for this private ruling

· an offer of employment letter

· a contract of employment with an overseas entity

· a letter from an education facility

· transaction details for payment of course fees

· a letter form a registration authority

· a certificate of registration

· a letter in response to an Australian Taxation Office letter.

You are an Australian citizen.

You enrolled in a course with education facility in Australia.

You had undertaken a number of subjects at the education facility in Australia.

Your reason for undertaking the course was to gain a qualification you could use when you returned to Australia.

You completed the course while residing overseas.

You gained entry to the overseas country on a visa.

You departed Australia late in the income year to commenced work in an overseas country.

You were a non resident for Australian taxation purposes when you left the Australia.

You have lived in an overseas country since you left Australia.

You had undertaken the study in your own time.

You were provided with study leave by your overseas employer to undertake the course.

You were reimbursed for part of the expenses incurred in relation to the course by your overseas employer.

You paid the course fees in the following income year.

You gained registration with an overseas government authority in the following income year.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 8-1.

Reasons for decision

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 were 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 explains how this provision applies to self-education expenses. Paragraphs 13-15 of TR 98/9 states that:

13.     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, the self-education expenses are allowable as a deduction.

14.     If 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 his or her current income earning activities in the future, the self-education expenses are allowable as a deduction.

15.    No deduction is allowable for self-education expenses if the study is to enable a 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).

In practice, the above three principles do not always operate on a mutually exclusive basis. It is always necessary to have regard to the works of section 8-1 of the ITAA 1997 and apply them to the facts.

The decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena's Case) reinforces the principles of paragraph 15 of TR 98/9 in that such expenses for self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

In your case, you were employed and enrolled in a course at a education facility in Australia. The course was not undertaken to maintain or improve an existing skill or knowledge used in your income-earning activity as your reason for undertaking the course was to gain qualifications to gain employment with an overseas entity. Nor can it be said that the subject of the course was likely to lead to a future increase in your income from the income-earning activity. Therefore, the essential character of the expenditure is to enable you to obtain new employment in an overseas country. While it is acknowledged that you may return to Australia and gain employment at a later date in a new profession where study enables a person to open up a new income earning activity in which they are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and are not an allowable deduction under section 8-1 of the ITAA 1997.

Further, in light of your departure from Australia to take up employment with an overseas entity as per section 8-1 of the ITAA 1997 and Maddalena's Case, any course expenses incurred after your date of departure from Australia were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income in Australia. These expenses were incurred whilst you were a non resident of Australia, living in an overseas country prior to returning to Australia and are therefore not allowable deductions under section 8-1 of the ITAA 1997.