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Ruling

Subject: Deduction for self education expenses

Question

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

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You were employed as a consultant in the marketing department where you assisted clients who were seeking copies of publications and documents. You managed the supply chain process and liaised with the printers to supply your clients.

With your employers support you took unpaid leave from early 2011, to study full-time for a Master of Business Administration (MBA).

You resigned from your job in June 2011.

You advised you undertook the MBA as you desired promotion and an increased income stream.

The main aim of the MBA program is to assist students to develop their capacity to become effective senior level general managers in a wide range of private, public and government organisations.

In early 2011 the courses were The World of Management, Financial Accounting, Managerial Economics, Managing People, Data & Decisions and Marketing.

In mid 2011 the courses were Economics & Public Policy, Managing Processes, Financial Management, and Business Strategy. These were all compulsory subjects.

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 losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are of a capital, private or domestic nature.

Taxation Ruling TR 98/9 discusses which self-education expenses are allowable as a deduction.

At paragraph 13, TR 98/9 states that if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

Where there is insufficient connection between your course of self-education and your income-earning activities, the requirements of section 8-1 of the ITAA 1997 will not be satisfied.

You were employed in a marketing department and was in involved in the managing the supply chain process of delivering printed material to clients.

The MBA that you have undertaken has a stated aim to assist students to become senior level managers. The courses that you were enrolled in between early 2011 and mid 2011 were all compulsory and were designed to give you skills and understanding of the role of management.

At paragraph 15, TR 98/9 states that no deduction is allowable for self-education expenses if the study is to enable you to get employment, enable you to obtain new employment, or to open up a new income-earning activity.

This view is supported by the decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 which establishes the principle that no deduction is allowable for self-education expenses if the study, viewed objectively, is designed to enable a taxpayer to get employment or obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Self-education expenses may be deductible only when it has the essential character of an income-producing expense.  

You commenced the MBA in 2011 and you were on unpaid leave from your employment as a consultant. It is considered that the course you studied does not satisfy the tests outlined in paragraph 13 of TR 98/9 as the study did not maintain or improve your skills and knowledge in your duties as a consultant, rather it provided skills and knowledge in management.

Self-education that is undertaken to provide you with new employment opportunities and increased income from different income earning activities are excluded in paragraph 15 of TR 98/9. Consequently, the self-education expenses incurred in undertaking the MBA during the 2011 year do not have relevant connection with the earning of your assessable income.

Therefore, you are not able to make a deduction for your self-education expenses.