Edited version of private ruling

Authorisation Number: 1011613121915

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Ruling

Subject: Self-education expenses

Are you entitled to a deduction for self-education expenses incurred while undertaking a commercial cookery course?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You commenced a course at a college. You will complete the course in 2011.

You were working in an unrelated field when you commenced the course.

After the commencement of the course you completed a few months work placement working several hours per week. You then commenced casual work at a restaurant. Your duties initially involved dishwashing and preparation of food. After a few months you progressed to cooking from the menu.

You provided receipts for the expenses you incurred for the course.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

No deduction is allowable for your self-education expenses as the course will enable you to open up a new income-earning activity.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings 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.

Self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's income earning activities at the time the study is undertaken.

Taxation Ruling TR 98/9 considers the deductibility of self-education expenses and states that 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.

In addition, 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.

However, 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). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

The decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 establishes the principle that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to get employment or to obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

TR 98/9 provides the following examples:

Example: Stuart wants to be the manager of a hotel. He enrols in a hotel management course, one semester of which involves an industry placement to gain work experience. Stuart is placed with a major hotel where he gains experience in all facets of hotel management, including catering, housekeeping and bar work. He claims a deduction for the cost of the course against income earned during the placement.

A deduction is not allowable because the study is designed to get Stuart employment as a hotel manager, not derive income from work experience. It is incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Example: Shannon, who is undertaking a 4-year university degree in mining engineering, 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.

In Case Z1 (1991) 92 ATC 101; AAT Case 7541 (1991) 22 ATR 3549 (Case Z1), a public service clerk studying for a law degree later obtained a legal officer position in the public service. Such expenses of self-education were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Commercial cookery course

You commenced a course to enable you to become a qualified professional and at the time, you were working in an unrelated field. Although you obtained casual work in a restaurant after the commencement of the course, the study did not have a relevant connection to your income earning activities at the time the study commenced.

Your study will open up a new income earning activity for you. Therefore, the study expenses you incurred are not deductible as they were incurred at a point too soon.