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Ruling

Subject: Work-related self education expenses

Question 1

Are you entitled to claim a deduction for work-related self education expenses in the 2011-12 financial year?

Answer

No

This ruling applies for the following period

Year ending 30 June 2012

The scheme commences on

1 July 2011

Relevant facts and circumstances

You have a law degree obtained in a foreign country. You are undertaking professional examinations in order to have your foreign qualifications recognised in Australia.

In addition, you are undertaking a course of education in law to obtain a better understanding of the Australian legal system, the practical aspects of legal work and to allow you better opportunities of promotion and higher income.

You are currently employed as a paralegal, and were previously employed as a legal assistant.

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, or relate to the earning of exempt income.

Taxation Ruling TR 98/9 sets out the Commissioner's views on the circumstances in which self-education expenses are allowable as deductions.  

Paragraph 15 of TR 98/9 provides that a deduction is not allowable for self-education expenses if it designed to get employment, to obtain new employment or to open up a new income producing activity.

In F C of T v. Maddalena 71 ATC 4161; 2 ATR 541;(1971) 45 ALJR 426 (Maddalena's case) it was held that a taxpayer who sought to claim expenses associated with obtaining an employment contract with a new football club was not entitled to a deduction for those expenses. The expenses were regarded as not having been incurred in gaining or producing assessable income.

In the context of self-education, where the expenditure is designed to put a person in a position where they are better able to find employment or where they can change the direction of their employment, the principle established in Maddalena's case will apply. Such expenses will be regarded as having been incurred too soon to be tax deductible.

In your case it is considered that whilst the knowledge gained from your course of education is of assistance as a paralegal, this is subsidiary to the main reason to undertaking the course, that is, becoming a solicitor. You are undertaking your course of education in order to work as a solicitor in future years. While there was some relation to the employment and your course of study, your main reason for completing this course was to open up a new income earning activity, that is, you cannot practice as a legal practitioner until you have met all the formal qualifications required and be admitted.

This is also the case with the professional examinations which are undertaken to allow you to practice as a lawyer in Australia, which is a substantially different position than your current employment as a paralegal.

These qualifications are considered to be gained predominantly to allow you to use your foreign law degree to practice as a lawyer in Australia, that is, a new income earning activity. Accordingly, the self education expenses are not deductible.