Edited version of private ruling

Authorisation Number: 1011717330538

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Ruling

Subject: Self education expenses

Question

Are you entitled to a deduction for self education expenses?

Answer

No

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You own and operate a small firm.

You are involved in a product development.

You encountered some legal troubles with a client and as a result you decided to undertake legal studies.

You have applied to a university to study some law units .

The objectives of the study are to:

· Improve your understanding of contract and commercial law, so that you are better equipped to position your business contractually in the future,

· Give yourself a better footing and understanding to defend the current threat you have, and

· In the event your business is wound up and you become personally bankrupted, you have a plan of action in place for a possible future in law.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

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, except where the outgoings are of a capital, private or domestic nature.

Taxation Ruling TR 98/9 states that self-education expenses are allowable as a deduction if your current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables you to maintain or improve that skill or knowledge.

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 an allowable deduction.

However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayer's current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. 

To determine whether circumstances exist which would support a deduction for your study course, 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.

In your case you currently have skills and experience in your chosen area of expertise. Whilst you believe that the legal background would provide the knowledge and skill to better equip you in understanding contract and commercial law, the studies do not maintain or improve an existing skill or knowledge used in your current income-earning activities. Nor can it be said that the subject of your studies will objectively lead to, or will likely to lead to, a future increase in your income from your current income earning activities.

Consequently, the self-education expenses incurred in undertaking the law studies have an insufficient connection with the earning of your assessable income.

You have indicated you undertook the studies in the event that if your business is wound up you had a plan of action in place for a possible future career in law. The studies are therefore designed to enable you to start a new income-earning activity and have been incurred at a point too soon. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.