Edited version of private ruling

Authorisation Number: 1011839007647

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Ruling

Subject: Self education expenses

Question 1

Are you entitled to a deduction for self education expenses you incur for private flying lessons?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commences on:

You have been employed for several years.

You are currently employed as an instructor.

You have held this position for a few years.

You operate an aircraft to train future officers over a period of X weeks.

Your have provided a list of duties for your role as an instructor.

Your primary responsibility throughout is to assist the pilot in all aspects and ensure the safety of the aircraft and crew.

You carry out your training duties by centrally sitting behind the pilot and co-pilot and by monitoring students who are seated in the co-pilot seat and assisting the pilot as required.

You commenced a private pilot licence course as a casual student with the course taking up to 12-18 months to complete. The cost of the course includes aircraft hire with an instructor, exam fees, equipment and text books.

You are required to complete a certain number of flying hours and to date you have completed X flying hours.

You have provided a copy of the Day Visual Flight Rules (VFR) syllabus for aeroplanes. During the course you fly another aircraft.

You claim that the fundamental skills and knowledge you learn from the lessons apply equally to aircraft regardless of size and type.

On achieving your private pilot licence you will able to fly solo any single engine aircraft on which you are endorsed with a maximum take off weight of less than 5700kg.

You contend that the course you are undertaking will improve your aviation and flying knowledge, skills and experience and consequently your ability to perform as an instructor. Your expected improvements will have:

· greater awareness of basic flying principles

· greater depth of knowledge of pilot skills and theory

· increased ability to conduct co-pilot duties

· greater support to pilot in all aspects of flight

· increased cockpit resource management

· increased ability to instruct students in the co-pilot role

· increased effectiveness in simulator operation facilitating improved instruction.

You are currently in a role which expires in a few years. The terms of current contract legally binds you to your employer in your current role. You have no intentions of discharging from your current employer or changing your occupation at the conclusion of your contract.

Your employer provides you with annual flight training in a simulator but they actively encourage further refinement of these skills by way of private lessons.

Your employer provides you with adequate training to fulfil your responsibilities but reserves its pilot training to members selected as pilots.

You have access to a study scheme in which you are eligible under a level three assistance that relates to vocational development in your current role which does not include career change or a tertiary qualification.

Your employer encourages you to undertake training clearly focusing on the development of relevant skills and knowledge, while also assisting in personnel career transition.

You have since been promoted. Future promotions beyond will be based on selection with your performance in your current role.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature.

Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. Self-education expenses are deductible where they have a relevant connection to the taxpayer's current income earning activities.

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; (1961) 8 AITR 406).

Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer 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 designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayers 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 (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161).

In Commissioner of Taxation v. Studdert (1991) 91 ATC 5006; (1991) 22 ATR 762; (1991) 33 FCR 75 (Studdert's case) the issue of pilot training for a flight engineer was considered. The Federal Court agreed with the AAT in finding that there was relevant connection between the expenses of the pilot training and the activities as a flight engineer. It was part of the duties to understand the overall workings of aircraft flight. The lessons made the flight engineer better equipped to perform his skilled job and better proficiency was a motivation for undertaking the lessons.

In your case, you are employed as an instructor. Your duties include general flying non-instructional, airborne instructional duties and simulator instruction.

Your circumstances are comparable to those in Studdert's case. Your position requires you to have knowledge and skills of aviation and flying to perform your duties. The course which will allow greater awareness of basic flight procedures, increase your ability to conduct co- pilot duties, provide support to the pilot and increase in ability to instruct students in the co-piloting role.

As there is a relevant connection between your training and increasing the knowledge and expertise required in your position, you are entitled to a deduction for self-education under section 8-1 of the ITAA 1997 for the cost of undertaking private pilot training.

Further information

When claiming for self education expenses, you will need to take into account any reimbursement that you receive from your employer in the year that you incur the expenses.

Note

The self-education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. An explanation on how this provision operates is provided at paragraphs 119 to 155 of TR 98/9, which can be assessed on our internet website at www.ato.gov.au.