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Ruling

Subject: Self education expenses

Question

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

Answer

No

This ruling applies for the following period

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on

1 January 2013

Relevant facts

You are in a particular profession.

You have incurred tuition fees in relation to a course at a University.

You have no intention to change occupations but to remain in your profession.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Self education expenses are generally considered under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This section allows a deduction for losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent to which they are capital, private or domestic in nature.

To be deductible under this section an expense must have the essential character of an expense incurred in gaining or producing assessable income or, in other words, of an income-producing nature.

The Commissioner's view on the deductibility of self education expenses is contained in Taxation Ruling TR 98/9. In accordance with TR 98/9, expenses of self education are allowable 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, and

the study of a subject of self education objectively leads to, or is likely to lead to, an increase in a taxpayers income from his or her current income-earning activities in the future.

Costs of self education are not deductible if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. In such situations the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income [see Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161].

In AAT Case 6600; Studdert & Federal Commissioner of Taxation 91 ATC 2007 (Studdert's case), the taxpayer, a flight engineer, sought deduction for expenses incurred on light aircraft flying lessons leading to a private pilots licence. Hill J found that the expenses were relevant and incidental to the activities as flight engineer that directly produced Mr Studdert's income. This finding was based on the facts that undertaking the lessons made him better equipped to perform his skilled job and better proficiency was a motivation for undertaking the lessons (refer paragraph 40 of TR 98/9).

In Commissioner of Taxation v. Wilkinson, (1983) 83 ATC 4295; (1983) 14 ATR 218 (Wilkinson's case), the taxpayer, an air traffic controller employed by the Department of Aviation, claimed a deduction for the cost of taking flying lessons. The court ruled that obtaining flying experience and qualifications enabled the taxpayer to better fulfil his responsibilities as an air traffic controller and made it inherently likely that he would be promoted and receive a higher salary. Promotion in fact followed quickly upon obtaining his student pilot's licence, and that was a material, if not decisive, consideration. Furthermore, the court ruled the responsibilities of an air traffic controller, in an age of changing technology, demand a progressive acquaintance with all aspects of aviation and there is an implied obligation incidental to the position that an air traffic controller will avail himself of opportunities to maintain and improve his efficiency. Flying experience would, out of necessity, increase efficiency.

Your situation is different from that in both Studdert's case and Wilkinson's case as you are in a particular profession undertaking a degree which is related to the practice of law.

In the Administrative Appeals Tribunal case Pujara v. Federal Commissioner of Taxation (2003) AATA 331 (Pujara's case), the taxpayer was enrolled in a Masters of Business Operations Management course at the University of Western Sydney.

Mr Pujara came to Australia from India on a student visa in February 1998. He had obtained a Bachelor of Commerce degree. After graduation and before coming to Australia, he worked for a company that distributed fabrics to wholesalers. He was a warehouse assistant and worked in the despatch area.

The purpose of the course was to provide advanced theoretical and practical skills in managing quality in a business organisation, including logistics management and statistical process control.

The taxpayer was also employed part-time as an assembler store person for a pharmaceuticals company. His duties included the manual assembly of orders, updating records of bulk stock and assisting with stock distribution.

In denying the taxpayer a deduction for his self education expenses, the Tribunal determined at paragraph 19:

the routine nature of the applicant's activities was such that the necessary skills and performance could be maintained without further training. Objectively, the new information and learning he acquired through the Masters degree was at a higher level than he required for his position. It would not improve or tend to improve his proficiency in a relatively junior role. The "perceived connection" between the Masters degree and the applicant's activities as an assembler store person is missing. The Tribunal is not satisfied, therefore, that the expenditure on self education during the 1998-99 year of income was incidental and relevant to gaining or producing his assessable income.

It is considered that your case is similar to Pujara's case in that the degree you are undertaking is at a much higher level than would be required to carry out your current duties. Although you may gain some knowledge and skills from the subjects studied that could be of some assistance in your work, the predominant focus of the degrees is to provide the skills to open up a new income earning activity. Therefore, you are not entitled to a deduction for self education expenses.