Edited version of private ruling

Authorisation Number: 1011644644929

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Ruling

Subject: self-education expenses

Are you entitled to a deduction for self-education expenses?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a full-time employee as an assistant section manager in the public service.

Your duties include the following:

· present information in meetings which you attend regularly

· prepare your own speeches

· liaise with other government departments

· report to the section manager.

You currently do not manage staff in your position but you have managed staff in your previous jobs.

You joined the public speaking club in order to gain confidence and improve your competence in public speaking.

The activities in the club include preparation of your presentations at home, providing short oral presentations on varied topics, and attending fortnightly meetings in the evenings.

You aspire to gain a certificate in Competent Communicator which will require you to make a number of presentations. This will take another year or two years.

You have incurred expenses associated with being an active member of the club. These expenses are:

· membership fees

· on-going six-monthly fee

· associated travel costs.

You have not received an allowance or have been reimbursed for expenses incurred in relation to your study.

It is part of your performance agreement at work that you take part in a public speaking course.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

Your membership with a public speaking club is considered to be too general and private in nature and not sufficiently connected to your income-earning activities. Therefore, no deduction is allowable for the costs associated with being an active member of the public speaking club.

Detailed reasoning

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 or are necessarily incurred in carrying on a business for the purpose of 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 discusses circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

At paragraph 42, TR 98/9 states:

If a course of study is too general in terms of the taxpayer's current income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances.

To determine whether circumstances exist which would support the deduction for a personal development course we must look to the 'essential character' of the expenditure. It is necessary to determine whether there is a sufficient nexus between the expenditure and the taxpayer's income-earning activities.

In Case U101 87 ATC 616 (Case U101) and Naglost v. FC of T (2001) 2002 ATC 2008; (2001) 49 ATR 1028 (Naglost), the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses.

Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently. The AAT denied the claim and held that there was not a sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment.

Conversely, in Naglost the AAT allowed a partial deduction to a serving member of the Royal Australian Air Force (RAAF) who undertook a course of study at 'Mastery University'. The taxpayer's duties included management responsibilities and the course of study was designed to enhance leadership, management capabilities and decision-making processes. Further, the course was approved by the taxpayer's employer and some expenses were reimbursed by the RAAF.

The AAT held that the expenditure was allowable as it was considered to be directly relevant to the applicant's role as a manager. The applicant had direct management responsibility for a group of 20 to 25 people and was responsible for the unit's physical training, plus occupational health and safety. Therefore, expenditure on the course was considered to be sufficiently relevant to the taxpayer's income producing activities.

Naglost demonstrates that a personal development course will have the 'essential character' of an income-producing expense where a taxpayer can demonstrate a link, not only to skills and knowledge in general, but also to their current duties.

Cases such as Case M10 (1961) TBRD 69 (Case M10) and Case V13 88 ATC 163 (Case V13) support the view that personal development courses which focus on motivation, personal and human relationship, communication, salesmanship and applied psychology are not considered to be incurred in earning the income from a taxpayer's occupation. These expenses are considered to be incurred in developing the taxpayer's personal capacity and experience, personality, self-confidence and self-expression, thus are considered to be private in nature.

In Case M10, the taxpayer was an agent for a life assurance society. He was denied a deduction for the cost of a Dale Carnegie Course in which he received instruction and training on Effective Speaking, Leadership Training and Human Relations. The prospectus of the course states that the course consists of a combination of public speaking, salesmanship, human relations, personal development and applied psychology. In disallowing the deduction claimed, the member of the Tribunal commented that expenditure by a taxpayer upon development of his personality, self-confidence and self-expression can only be expenditure of a private nature whatever the ulterior purposes may otherwise be served. The course was in the nature of an advanced educational training for people in all walks of life and was private in nature and not allowable as a deduction.

In Case V13, the taxpayer was a life assurance sales woman. In an attempt to improve her selling skills the taxpayer undertook, at considerable expense, a series of courses in communication, personal development and business skills. The taxpayer's claims for the cost of the course and for depreciation of books were disallowed by the Commissioner and her appeal to the objection was further disallowed by the AAT. In disallowing the claim, P M Roach (Senior Member) indicated that he accepted that her studies contributed to her personal development in ways that gave her a greater self-confidence and a greater art of communication and there-by gave her a greater capacity to persuade others to follow courses proposed by her. He stated that despite these contentions, the courses undertaken were principally directed to the personal development of the individual and of her capacities. The courses under consideration were conducted at that level and were so closely and deeply involved with the individual person that they must be characterised as private.

By applying the principles as established in the above cases to your case, it is considered that the expenses associated with being a member of the public speaking club are not themselves directly attributable to the derivation of your assessable income as an assistant section manager in the public service. The knowledge that you gained from undertaking the presentations in the public speaking club may result in an improvement in your self-confidence and thereby allow you to develop as a better communicator and leader. It may also be of assistance to you in the performance of your income-earning activities. It is equally true to say that virtually any experience and the acquisition of any knowledge will contribute to the individual's own development with consequent benefit to the employment duties. There are many experiences which would help in improving your self-confidence and leadership skills, yet expenses incurred in acquiring this knowledge and experience do not become expenses incurred in gaining your assessable income.

Your involvement with the public speaking club is designed to improve self-confidence and is largely personal and private in nature. As such, the course is considered to be a self-improvement course and too general in terms of your current income-earning activities.

It is considered that the skills obtained from being an active member of the public speaking club are not unique to your current position and could also lead to an increase in efficiency in many other fields of employment. Furthermore, where an employer subsidises a particular course of study, though not decisive in itself, this fact may lend weight to self-education expenditure having a nexus with income-earning activities.

The activities in the public speaking club, therefore, have the character of the courses referred to in paragraph 42 of TR 98/9. Furthermore, unlike Naglost, your participation cannot be directly related to your current income-earning activities.

Accordingly, the expenses associated for being a member of the public speaking club are considered to be more related to development of personal capacity which is considered to be private in nature and therefore, not deductible under section 8-1 of the ITAA 1997.