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Ruling

Subject: Self-education expenses

Question

Are you entitled to a deduction for your course fees and the interest on the loans used to pay the course fees?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are currently employed in your chosen profession of Information Technology (IT).

You have been in this job since near the end of the 2010-11 financial year.

Prior to this position you were last employed in an IT position a couple of years ago.

You then worked in a non-IT position for approximately a year before enrolling with a private IT training institute. You did this to keep up to date with developments in IT which is required in order to obtain employment in the IT industry.

This institute was liquidated before you completed this course. You borrowed money from the bank to pay for this course

A few months before you commenced work in your current employment position you enrolled in a second IT course and again borrowed money from the bank to pay for this course.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

The course fees were incurred while you were between jobs in the IT field. Therefore, these expenses were incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income. Your course fees and interest expenses do not have a sufficient connection with your assessable income. Accordingly, you are not entitled to claim a deduction for these expenses.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 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, or relate to the earning of exempt 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 designed to enable a taxpayer to get employment, to obtain new employment or 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 (Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, 48 and 62 of TR 98/9).

In your case, you were in between employment at the time of incurring the course fees. Therefore, these expenses cannot be characterised as having been incurred in the course of earning your assessable income.

Applying the Maddalena principle above, your course fees were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Therefore, you are not entitled to a deduction for the course fees you have incurred.

Interest

The following example in TR 98/9 is relevant in your case:

Example: After completing his secondary education, Alex studied commerce as a full-time student at a private university. He borrowed $30,000 in 1995, repayable over 5 years, and used the funds to pay course tuition fees. He completed his degree the following year and obtained employment with an accounting firm in early 1997.

No deduction is allowable for interest incurred on the loan. The funds borrowed were not used for an income-producing purpose, but related to a course of study undertaken by Alex before he obtained his current employment. Accordingly, there is not a sufficient connection between the interest expense and Alex's current income-earning activities.

Similar to the above example, you borrowed funds to pay for course fees that were incurred before you gained your current employment position. Therefore, there is not a sufficient connection between the interest expense and your current income earning activities. Accordingly, you are not entitled to a deduction for the interest expense.