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Edited version of private ruling
Authorisation Number: 1011638295209
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Ruling
Subject: Deductibility of self education expenses
Are you entitled to a deduction for the cost of the lifetime self education program you purchased?
No.
This ruling applies for the following period:
Year ended 30 June 2009
The scheme commenced on:
1 July 2008
Relevant facts
You purchased a life time self education program (the program).
This fee gives you access to a number of specialised courses and real estate experts.
Since purchasing the program you have purchased a number of new properties.
Since purchasing the program you have undertaken multiple courses.
You have used the knowledge gained from the program to locate, analyse, negotiate, complete finance and evaluate contracts of sale, and to ensure you have an exit strategy.
You intend to purchase several new properties per year and you will hold them until you are forced to sell them.
You have also used the knowledge gained from the program to increase the rental return on your properties.
Although you make money on both growth in property value and growing rental income, the investment strategies you intend to implement as a result of undertaking the program are long term investment strategies.
Relevant legislative provisions
Section 8-1 of the Income Tax Assessment Act 1997
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in order for an expense to be deductible there must be a connection between the expense and the gaining or producing of assessable income. However expenses that are capital in nature are not deductible.
Taxation Ruling TR 98/9 details our view on the deductibility of self education expenses. Essentially, self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income earning activities.
Therefore, it is necessary to determine the connection between the self education expense and the means by which the taxpayer directly produces their assessable income (as opposed to expenses that relate to capital receipts). Whether there is a connection is a question of fact to be determined with reference to all the surrounding circumstances.
In your case you purchased the program.
Purchasing the program gives you access to a number of specialised courses and real estate experts.
You have undertaken a large number of courses. These courses relate to future property investment strategies and practices.
You have stated that you use the knowledge gained from the program to locate, analyse, negotiate, complete finance and evaluate contracts of sale and to ensure you have an exit strategy where the sale turns bad, and that these investment strategies are long term investment strategies. You intend to purchase multiple properties per year and to hold on to the properties until you are forced to sell them.
The expense of purchasing the program is considered to be capital in nature because the knowledge you have gained from the courses in the program predominantly concerns buying and selling property, rather than earning assessable income from rental properties.
We recognise that the knowledge you have gained since purchasing the program may have a residual benefit in earning rental income. Indeed, we accept that your rental income has increased since you purchased the program. However, this does not show that there is a sufficient connection between the expense and the earning of assessable income. Nor does it change the fundamental nature of the expense as a capital expense as it relates to the capital receipts gained from selling properties, rather than assessable income from renting out your properties.
As the course is predominantly geared to assist you in acquiring properties and not related to ongoing costs of ownership, the entire cost of the course is considered to be capital in nature. In addition, we do not consider the content of the course to be sufficiently relevant to the earning of income from your existing rental portfolio.
Therefore, a deduction for the cost of the program is not allowable under section 8-1 of the ITAA 1997.