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Ruling

Subject: Self education expenses

Question

Are you entitled to a portion of the cost of a coaching program as a deduction for self education expenses?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are a sales and marketing manager.

You do not directly manage any staff.

You have undertaken a three month coaching program.

Your employer has not contributed to the cost of the training as they consider it too expensive. However, they would normally pay for training and development courses.

You will not receive a pay increase from undertaking the mentoring but it may assist you in getting a promotion when a position becomes available.

Your training areas of coaching are focused on twelve areas.

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 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 circumstances in which self education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the self education enables the taxpayer to maintain or improve that skill or knowledge, the self education expenses are allowable as a deduction.

At paragraph 42, TR 98/9 states:

If 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.

To determine whether circumstances exist which would support the deduction for a personal development course we must look to the 'essential character' of the expenditure. It is necessary to determine whether there is a sufficient nexus between the expenditure and the taxpayer's income-earning activities.  

In Case U101 87 ATC 616 (Case U101) and Naglost v. FC of T (2001) 2002 ATC 2008; (2001) 49 ATR 1028 (Naglost), the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses.

Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently.

The AAT denied the claim and held that there was not a sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment.

Conversely, in Naglost the AAT allowed a partial deduction to a serving member of the Royal Australian Air Force (RAAF) who undertook a course of study at 'Mastery University'. 

The taxpayer's duties included management responsibilities and the course of study was designed to enhance leadership, management capabilities and decision-making processes. Further, the course was approved by the taxpayer's employer and some expenses were reimbursed by the RAAF.

The AAT held that the expenditure was allowable as it was considered to be directly relevant to the applicant's role as a manager. The applicant had direct management responsibility for a group of 20 to 25 people and was responsible for the unit's physical training, plus occupational health and safety. Therefore, any expenditure on the course was considered to be sufficiently relevant to the taxpayer's income-producing activities.

The tribunal also found that the fact the RAAF assisted the taxpayer to pay their course fees indicated that the employer regarded the course as relevant to the taxpayer's employment. The assistance was approved in accordance with the formal RAAF guidelines relating to the Defence Force Assisted Study Scheme.

Naglost demonstrates that a personal development course will have the 'essential character' of an income-producing expense where a taxpayer can demonstrate a link, not only to skills and knowledge in general, but also to their current duties. Furthermore, where an employer subsidises that study, though not decisive in itself, that fact will lend greater weight to self education expenditure having a nexus with income earning activities.

Cases such as Case M10 (1961) TBRD 69 (Case M10) and Case V13 88 ATC 163 (Case V13) support the view that personal development courses are not considered to be incurred in earning the income from a taxpayer's occupation. These expenses are considered to be incurred in developing the taxpayer's personal capacity and experience are considered to be private in nature. The expenses are more correctly characterised as those which are necessary to put the taxpayer in a position to carry out the income earning activities.

In Case M10, the taxpayer was an agent for a life assurance society. He was denied a deduction for the cost of a Dale Carnegie Course in which he received instruction and training on Effective Speaking, Leadership Training and Human Relations. The prospectus of the course states that the course consists of a combination of public speaking, salesmanship, human relations, personal development and applied psychology. In disallowing the deduction claimed, the member of the Tribunal commented that expenditure by a taxpayer upon development of his personality, self-confidence and self-expression can only be expenditure of a private nature whatever the ulterior purposes may otherwise be served. The course was in the nature of an advanced educational training for people in all walks of life and was private in nature and not allowable as a deduction under section 8-1 of the ITAA 1997.

In Case V13, the taxpayer was a life assurance sale's woman. In an attempt to improve her selling skills the taxpayer undertook, at considerable expense, a series of courses in communication, personal development and business skills. The taxpayer's claims for the cost of the course and for depreciation of books were disallowed by the Commissioner and her appeal to the objection was further disallowed by the AAT. In disallowing the claim P M Roach (Senior Member) indicated that he accepted that her studies contributed to her personal development in ways that gave her a greater self-confidence and a greater art of communication and there-by gave her a greater capacity to persuade others to follow courses proposed by her. He stated that despite these contentions, the courses undertaken were principally directed to the personal development of the individual and of her capacities. The courses under consideration were conducted at that level and were so closely and deeply involved with the individual person that they must be characterised as private.

In your case, your employer has not subsidised any of the cost of the sessions; you are not required to manage any staff and you will not derive additional income from your current position.

Some of the sessions taken are aimed at your personal development or are very general and sufficient nexus with your current income earning activities cannot be established. It is considered that the skills obtained from these courses are not unique to your current position and could also lead to an increase in efficiency in many other fields of employment.

Although improving your personal characteristic may impact on your working life, it is not a cost that is sufficiently connected to your assessable income.

We consider that most of the sessions are too general and lack the relevant nexus.

However, we consider that a sufficient nexus between the expenditure and one of the sessions and your employment duties may exist.

Therefore, you are entitled to a deduction for a reasonable proportion of the expense.