Edited version of private ruling

Authorisation Number: 1011675236437

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Ruling

Subject: Work related self-education and travel expenses

1. Can you claim a deduction for instrument tuition fees while in Australia and overseas?

No.

2. Can you claim a deduction for domestic and overseas travel expenses in relation to competing in instrument competitions?

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences 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.

School employment

You are employed on a casual basis as an instrument teacher at two schools.

You work three days per week at school A, and two days per week at school B. You have requested that employment at school B be reduced to one day per week so you can focus on giving private lessons.

At school A you teach a number of students in one on one lessons during the week. In addition to this, you supervise band practices, performances, competitions and any other functions.

Your duties also include writing reports, liaising with directors, conducting parent/teacher interviews and compiling music for the band to play.

At school B you are employed as the assistant instructor and your main role is teaching.

In this position you teach a number of students over two days, but as this will be reduced to one day per week the number of students will also reduce.

You are occasionally asked to run band practices and other band functions, although this is not your primary responsibility.

You do not have formal teaching qualifications for these positions. However, you have attained intermediate and senior certificates through an institute and have experience working with bands locally and internationally.

You do not or are not required to teach any other subjects at the schools.

Tuition business

You also operate a private instrument tuition business from your home, as well as importing instruments and instrument parts.

You teach a number of students privately per week. However, this number varies due to students' commitments outside of their lessons.

The sales side of your business is a new venture. You estimate that 70% of your business income comes from teaching and 30% from the selling of instrument parts.

You have not had to advertise to attract students or instrument sales. You attract students through word of mouth, recommendations from peers, contact through a band association, and school leavers wanting to continue tuition through you. Sales of instrument parts are through similar means.

You are considering advertising and possibly creating a website for your business in the future.

Competitions

You partake in solo instrument competitions both domestically and internationally. The main locations where you compete are city A, city B and an overseas country. More overseas destinations are planned in the future.

For local competitions you travel by car and expenses involved are usually just entry fees and fuel costs. You have not partaken in many local competitions for the past two years due to work commitments at the competitions, as you are the designated carer for students who also compete at the competitions.

The contest in city B is the biggest solo contest in Australia. Recently you won several awards. Recently at the overseas country contest you received several awards. The competitors in these competitions are amongst the highest rated players in Australia and the overseas country.

Although these are the highest level competitions in the region, there are still many higher level professional grade competitions that you can obtain in other overseas countries. In order to compete in these competitions, you must participate in grading 'auditions' as well as play in various competitions in order to be noted and qualify for the bigger contests.

Your current skill level does not qualify you for these contests and your intention is to upgrade your playing in order to compete overseas. For example, you wish to compete in a competition held overseas. In order to do this you would have to be successful in contests other contests before considering going. Participation and success in this contest would then make you eligible for higher level contests approaching professional grade.

In order to compete at these competitions it is necessary for you to have tuition.

Personal tuition

You use Skype for non face to face lessons from professional level players overseas. But, face to face lessons are the most useful.

There are no professional level players in your state, but there are numerous professional level players and teachers in the overseas country. You will be getting most of your lessons from an internationally recognized professional level competitor.

Your intention is to travel to an overseas country at various times for two to four days of intensive lessons. These would be four to six hours per day. These trips would not include sightseeing or tourist activities. The only social activities would be dinner with friends.

In the future, opportunities to receive paid lessons in other countries may arise. You have various contacts in other overseas countries who would be willing to give lessons. These trips would be of a similar nature to the overseas country trips but would most likely be over a longer period (two to three weeks) and would involve some private components.

You do not represent your employer when you compete at the overseas country and Australia.

It is not a requirement of your employment that you compete in the competitions, and your employer does not reimburse you for expenses you incur. Nor do you receive a travel allowance for trips away.

You work at exclusive schools who only employ the best teachers. You believe that your reputation as an instrument teacher is influenced by you competing in the competitions.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

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

Summary

The Commissioner considers that there is insufficient nexus between the tuition and travel expenses incurred and the earning of assessable income. Therefore, the expenses you incur are private in nature, and are not an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Section 8-1 of the 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.

For expenses to be an allowable deduction under section 8-1 of the ITAA 1997 there must be a sufficient connection between the outgoing and the activities directed at gaining or producing assessable income. The decision in Ronpibon Tin N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236, confirms that for an outgoing to be deductible, a taxpayer has to establish that there is a sufficient nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income.

The essential character of the expenditure must be identified to determine whether it is in reality an outgoing incurred in gaining or producing assessable income.

Taxation Ruling TR 98/9 provides the Commissioner's view on the deductibility of self-education expenses. It states that self-education expenses are incurred in gaining or producing assessable income if they are directly relevant to the person's current employment activities, or are likely to lead to an increase in income from those activities.

However, TR 98/9 explains that if the subject of the self-education is too general in terms of the taxpayer's current income-earning activities, the necessary connection between the expense and the income-earning activity does not exist.

The ruling also states that the intention or purpose in incurring an expense can be an element in determining whether the whole or part of the expense is an allowable deduction.

Tuition expenses

In your case, you have stated that your current instrument skill level does not qualify you for high level professional grade competitions, and your intention is to improve your playing in order to compete at higher level competitions.

While we acknowledge that you state that your reputation as an instrument teacher is influenced by you competing in the competitions, the above statement indicates that the main purpose of taking lessons is to improve your chances of competing at higher level competitions.

Further, we consider that the skills and knowledge you will receive as a result of your tuition will exceed that which is necessary in your current income-earning activities.

The Commissioner considers that there is insufficient nexus between the tuition expenses incurred and the earning of assessable income. Therefore, the tuition expenses you incur are private in nature, and are not an allowable deduction under section 8-1 of the ITAA 1997.

Travel expenses for competing in competitions

TR 98/9 also provides guidance on the deductibility of travel expenses. Whilst the ruling discusses self-education expenses the principles contained in it can be applied to your situation.

TR 98/9 explains that travel expenses incurred on overseas study tours or sabbatical, on work-related conferences or seminars, or attending an educational institution are deductible if the necessary connection with a persons income-producing activity exists.

However, TR 98/9 explains that if the subject of the self-education is too general in terms of the taxpayers income-earning activities, the necessary connection between the expense and the income-earning activity does not exist.

TR 98/9 provides that:

· if the main purpose of the travel is the gaining/production of income, the existence of an incidental private purpose does not prevent the expenses from being fully deductible

· if the travel was mainly devoted to a private purpose, such as a holiday, and the gaining/producing of income was merely incidental to the private purpose, only those expenses directly related to the income-earning purpose will be deductible

· if the travel was undertaken equally for income-earning purposes and for private purposes the expenses would be apportioned equally.

In Case U 109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

The circumstances of your case can be compared to the above decision. The travel expenses you incur in attending competitions are essentially private in nature, as the purpose of entering into the competitions is to enable you to compete at higher level competitions.

We acknowledge that you state that your reputation as a teacher is influenced by you competing in the competitions. However, the Commissioner considers that there is insufficient nexus between the travel expenses incurred in competing in the competitions and the earning of assessable income.

Accordingly, the costs associated with travel to compete in the competitions are not deductible under section 8-1 of the ITAA 1997.