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Ruling

Subject: Self education expenses

Question and answer:

Are you entitled to a deduction for course fees and associated expenses incurred in attending an investment course?

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You own a number of investments that are managed by both you and other parties.

You undertook an investment course.

The course is a home based study that also includes face to face seminars.

The course topics covered a number of topics centred around, establishing an investment portfolio

You explained that attending the seminars directly relates to the management of your existing investment portfolio because it has helped you to 'put theory into practice and to obtain a better understanding of the course content, questions, practical exercises, feasibility etc.'

Your explanation of how your management of your investment portfolio was changed by the course is that; you are 'using the knowledge gained from the study course to make your investments perform better from a cash flow perspective, having the loans structured correctly, creating manufactured growth, which in term increases investment yield prospects and possibly the value of the investment.'

You incurred course fees and travel/accommodation costs in attending the course.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

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.

For a deduction to be allowed the expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income. There must be a sufficient connection between the expense and the operations or activities which gain or produce the assessable income (Federal Commissioner of Taxation v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616).

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, discusses the circumstances under which self-education expenses are allowable as a deduction.

Paragraphs 13 and 14 of Tax Ruling TR 98/9 provides that self education expenses will satisfy the requirements of section 8-1 of the ITAA 1997 if:

· a taxpayers 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; or

· 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 their current income-earning activities in the future.

Therefore, provided there is sufficient connection between your course of self-education and your current income earning activities, you are entitled to claim a deduction for your self-education expenses.

However, paragraph 15 of TR 98/9, provides that self-education expenses will not be deductible if the study is intended to:

· enable you to get employment;

· enable you to obtain new employment; or

· to open up a new income-earning activity (whether in business or in your current employment).

Taxation Determination TD 95/60 Income tax: are fees paid for obtaining investment advice an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for taxpayers who are not carrying on an investment business, considers whether fees paid for obtaining investment advice are an allowable deduction for taxpayers who are not carrying on an investment business.

Tax Determination TD 95/60 provides that the fee paid to an investment adviser for drawing up an investment plan, that is, for providing advice on the most appropriate investments to make, is not an allowable deduction. The expenditure is incurred in putting the investments in place and therefore is incurred too early in time to be regarded as incurred in the course of gaining or producing the assessable income from the investments. There is an insufficient connection between the expenditure and the assessable income from the investment. The fee is not an allowable deduction even where the taxpayer has investments when the plan is drawn up and maintains some or all of these investments as part of a plan.

The principles expressed in TD 95/60 can be extended to other expenditure relating to investment activities. The application of the principles would not be regarded as being limited to fees paid for investment advice. Instead, the concept can also readily be applied to self-education expenses incurred in relation to investing activities. This means that self-education expenses where the course material largely centred on the topic of setting up an investment strategy would also not be deductible.

From the information provided, the costs you have incurred by attending the course in question, relate to an overall gaining of investment knowledge in relation to the analysis, managing, evaluation of the investment market and recognising strategies your investment portfolio requires to continue moving forward with property investing, financing existing and future investments. These are costs akin to the setting up of an investment portfolio, i.e. the potential future purchase of an income-producing asset.

As the overwhelming focus of the seminar relates to the setting up of an investment portfolio, the expenses you have incurred in undertaking the course are comparable to the fee paid to an investment adviser for drawing up an investment plan/structure as outlined in TD 95/60. Therefore these costs are considered an outlay of capital and, as such, are not deductible under subsection 8-1(1) of the ITAA 1997.

Not withstanding the principles expressed in TD 95/60, from the information that you have provided you stated that the course directly related to managing your current investments by helping you to put theory into practice and to obtain a better understanding of the course content, questions, questions practical exercises, feasibility etc. These activities do not demonstrate that there is a sufficient connection between the expense incurred and the earning of your assessable income.

Further, you have stated that the course has changed the way that you manage your investments as you are using the knowledge gained from the course to make your investments perform better from a cash flow perspective, having the loans structured correctly, creating manufactured growth, which in term increases the yield prospects and possibly the value of the investment. Once again these activities are akin to setting up an investment portfolio and therefore the expense has been incurred at a point too soon to be related to your current income earning activities.

While it is recognised that the knowledge you have gained while undertaking the course may have a residual benefit in managing your investment property portfolio, this does it change the fundamental nature of the expense as established in TD 95/60 as being capital in nature.

When the cost of the seminar itself is not allowable as a deduction, any associated expenses incurred including the travel and accommodation costs in attending that seminar are also not allowable as a deduction as they are considered to have the same character.

Accordingly, you are not entitled to a deduction for the course fees and associated expenses under subsection 8-1 of the ITAA 1997.