Edited version of private ruling

Authorisation Number: 1011691546545

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Ruling

Subject: Course fees and accommodation expenses

Question

Are you entitled to a deduction for course fees and accommodation costs?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You previously trained as a professional overseas. This training is only available overseas.

Several years ago you returned to Australia as one of only two professionals here.

You later went overseas and it was required that your credentials were acknowledged by the relevant administrative body as there was no administrative body in Australia.

In the particular year you were offered and accepted a job at an Australian event. This created conflict with the local professional, who refused to acknowledge you as a professional. To be acknowledged you needed to be refreshed.

You were originally an accredited professional, however, your credentials were now not acknowledged by the administrative body.

In order to practice in business you needed to get your credentials refreshed.

You needed professional certification to start your business.

You attended the Refresh course overseas in the recent year. The overseas training is the only refresher course available.

The course cost more than $500 and you also incurred accommodation costs.

You are still establishing your business and hope to commence business activities this month.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

The essential character of your self education expenses is to enable you to commence business. The expenses are incurred at a point too soon to be regarded as being incurred in gaining or producing your assessable income and are therefore not an allowable deduction.

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.

The deductibility of self education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for your course fees, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable income.

Taxation Ruling TR 98/9 discusses the circumstances under which self education expenses are allowable as a deduction. A deduction is allowable for self education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

Similarly, 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, a deduction is allowable.

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. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

To determine whether your self education expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

Self education courses are generally undertaken to further yourself in a position that you already hold.

In your case you went overseas for a refresher course in January in the recent year. You were unable to commence your business until you did this course. The cost of the course was incurred for the purpose of gaining recognition of your skills so that you could commence your business at a later date. That is, your business had not commenced when you did the course and you were not earning any assessable income in connection with your profession at the time.

It is acknowledged that you previously worked as a professional, however, the course fees and accommodation expenses you incurred are considered to have been incurred to obtain future business income and not in gaining or producing your current assessable income. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997. 

You have stated that this cost was incurred as a start up cost of your business. Expenses associated with the purchase or establishment of a business are generally incurred at a point too soon to be regarded as being incurred in carrying on the business and are not allowable deductions under section 8-1 of the ITAA 1997. For example, preliminary expenses on feasibility studies and tests in connection with establishing a paper production mill were held not to be deductible in the Softwood Pulp & Paper v. Federal Commissioner of Taxation 76 ATC 4439; (1976) 7 ATR 101.

The costs associated with the establishment of a business do not relate to the daily activities from which the business gains its assessable income. Any costs related to establishing that business structure are not an allowable deduction under section 8-1 of the ITAA 1997 as they are of a capital nature.

There is no other tax provision that allows a deduction in your circumstances.