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Ruling

Subject: Deduction-self-education

Question 1:

Are you entitled to a deduction for course fees?

Answer:

Yes.

Question 2:

Are you entitled to a deduction for subscription fees?

Answer:

Yes.

This ruling applies for the following periods

Year ended 30 June 2011
Year ended 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts

You have held an investment portfolio for a number of years.

You have received income from this portfolio.

You commenced buying and selling investment products on a regular basis.

You paid a subscription fee for an investment magazine.

You paid a course fee in relation to investment markets.

You commenced and completed the self-education course.

Your reasons for undertaking the course was to increase your knowledge of the investment markets by using various strategies to reduce risk, to collate and analyse information, minimise costs and to ride market trends to maximise profits.

You also paid a fee for an online course.

Your purpose for taking the online course was to understand how to use the principles learnt in the
self-education course.
Your income has increased as a result of the self-education course.

You do not undertake any other income earning activity.
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, relate to the earning of exempt income or are excluded by another provision of the taxation legislation.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 56 ALR 785; (1949) 8 ATD 431 the High Court stated that:

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.

Self-education course fees
Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable if 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.

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 open up a new income-earning activity. 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 71 ATC 4161; (1971) 2 ATR 541.

Similarly expenditure on setting up an investment portfolio or commencing share trading activities is incidental and relevant to outlaying the price of acquiring the investment (for example, shares) or the setting up of a business. The expenditure is incurred at a point too soon for a deduction to be allowed.

In your case, you have undertaken a course to increase your skills and knowledge of the investment and financial markets. At the time you commenced the course, you had undertaken a substantial amount of investments in the markets. It is accepted that the course will improve and enhance your knowledge in carrying out your current income earning activity. In addition, as a result of doing the course, your income has increased as you have made a profit for this activity.

As such, the course fee in relation to the self-education course is an allowable deduction under section 8-1 of the ITAA 1997.

Further, as your have paid tuition fees as part of the tuition program to be able to apply the knowledge gained from the self-education course in relation to your investment activities, it is considered these fees have sufficient connection to your current income earning activities. Therefore, the tuition fee is an allowable deduction under section 8-1 of the ITAA 1997.

Subscription fee
Taxation Determination TD 2004/1 states that a deduction is allowable for the costs of subscriptions to share market information services and investment journals to the extent that the expenditure is incidental and relevant to gaining or producing assessable dividends and interest from a portfolio of shares or bonds (whether or not a business is carried on) and is not a capital cost of putting the income earning investment in place. A deduction is not allowable to the extent that an expense is capital, private or domestic in nature.

The extent to which the costs of subscriptions to share market information services and investment journals is incidental and relevant to producing assessable income and not of a capital, private or domestic nature is one of fact depending on the particular circumstances of each individual case.

In your case, you have held an investment portfolio for a number of years. You subscribed to the investment journal to assist you in your income earning activities in relation to the investment markets. You are entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of subscription fee in the income year you paid the expense.