Edited version of private ruling

Authorisation Number: 1011696940614

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Ruling

Subject: Deduction-self-education expenses

Question

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

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· a private ruling application

· a letter from one of your employers

· a copy of the course of study

· a request for FEE-HELP Assistance

· responses to requests for information from the Australian Taxation Office

You hold a Bachelor degree.

You commenced full time employment with company A.

You are also employed by an education facility.

You enrolled in a course of education.

You commenced the course in the second half of the income year and you intend to complete the course in a few years time.

To complete the course you will need to complete a number of subjects.

Your rate of pay with the education facility will increase upon completion of the course.

Company A has provided approved study leave to undertake the course.

You will not receive any allowances or reimbursements for the expenses incurred in undertaking the course.

Your study may be undertaken both during normal work hours and after business hours.

Your employers have encouraged you to undertake the course.

At the completion of the course you intend to stay with both employers.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1936 Section 82A.

Reasons for decision

Summary

You are entitled to claim a deduction for the self-education expenses in relation to the course as the study will lead to an increase in income from your employment as an education facilitator.

Detailed reasoning

Self-education expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This section allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are capital, or are of a capital, private or domestic nature.

The Commissioner's view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9. These guidelines have been established through the views taken by the Courts, Boards of Review and Administrative Appeals Tribunals.

TR 98/9 provides two positive tests and one negative test in determining the deductibility of these expenses.

Firstly, if your income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables you to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

Secondly, if the study of a subject of self-education objectively leads to, or is likely to lead to, an increase in your income from your current income-earning activities in the future, the self-education expenses are allowable as a deduction.

The negative test operates to deny a deduction in certain circumstances. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

However if either of the two positive tests are satisfied, in respect of your current employment, the third test cannot be applied to deny a deduction as the expense cannot be regarded as being incurred at a point too soon when it has a direct connection to your current employment.

Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

However, where 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.

In Case R60, 84 ATC 447 (Case R60) the Board of Review disallowed self-education expenses. The taxpayer was a public servant and their position required relevant experience or some legal training (which the taxpayer already had) but not legal qualifications as such. In the circumstances, the continuation of the taxpayer's legal studies could not be characterised as a relevant incident of or as part and parcel of his employment. While the legal studies were specified as an advantage for the position held by the taxpayer and the taxpayer's legal training was relied on by the branch he was in, if the studies were discontinued, the branch would not have reacted at all. The branch head saw the encouragement given to the taxpayer as part and parcel of normal staff development.

In light of the two tests above, what needs to be fully considered is whether the undertaking of the course would contribute to the maintenance or enhancement of the skills and knowledge required in your employment as a business manager and as an education facilitator or lead to an increase in your income from your employment activities.

You have provided a list of your duties. We consider that it is from these duties that you gain or produce your assessable income and that any outgoing or expenses incurred must directly relate to your duties if the first test is to be met.

The circumstances of your case are similar to those in Case R60 in that your positions require some knowledge in the field that is the subject of the study. However, it is considered that you already have the necessary knowledge in that area to effectively carry out your duties as neither employer requires you to hold a formal qualification in that field.

The course in question is a specialised course that is recognised as a program which can lead to admission to practice in a professional field. Although parts of the course may have some incidental relevance to your current employment positions, it is considered that the knowledge gained from the course is well in excess of what is required to carry out your duties.

We acknowledge that company A has allowed you paid study leave. However, this is not, on its own, sufficient to make the expenses of your studies deductible under section 8-1 of ITAA 1997.

It is considered that the course does not have a sufficiently relevant connection to your duties in order for the first test to be met.

The only other circumstance in which the costs would be deductible is if the qualification was likely to lead to an increase in your income from your employment positions.

In your case, the undertaking of the course will lead to an increase in income from your current income earning activities as your pay level as an education facilitator will increase as a result of completing the course. Accordingly you are entitled to claim a deduction for the relevant self-education expenses in relation to the course under section 8-1 of the ITAA 1997.

Limit to the deductibility of self-education expenses

In certain circumstances you may have to reduce your allowable self-education expenses by $250. However you may have other types of expenses some of which are not allowable as a deduction that can be offset against the $250 before you reduce the amount you can claim for allowable expenses. Further information on how to work out your self-education expenses is provided in TaxPack and paragraphs 119 to 155 of TR 98/9. This publication and ruling can be accessed by visiting our website at www.ato.gov.au.