Edited version of your private ruling

Authorisation Number: 1012419303698

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Ruling

Subject: Self education expenses

Question 1

Are you entitled to a deduction for tuition fees incurred while undertaking a Post Graduate course?

Answer

No.

Question 2

Are you entitled to a deduction for travel expenses, transport fees, and car purchases and expenses incurred while attending the course?

Answer

No.

Question 3

Are you entitled to a deduction for the living and accommodation cost incurred whilst attending the course?

Answer

No.

Question 4

Are you entitled to a deduction for expenses incurred in attending and presenting conferences on topics related to, and while undertaking, the course?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are employed as a general dental practitioner, where you perform some very minor specific work on patients. The majority of the work you perform on clients is general dentistry. You must refer the majority of your patients requiring further specialist work.

You have been accepted into the Faculty of Dentistry at an overseas university, to complete the course. You will begin the course in 20XX, which you expect to successfully complete at the end of 20YY.

On completion of the course you will be a qualified specialist in your course.

During the course your employment will continue in Australia, and you will practice your general dentistry on returning to Australia during semester breaks.

After you obtain the qualification, the practice's business focus will continue to be general dental. However you will incorporate your specialist treatment modalities available to patients into the practice, as well as referrals from general dentists to carry out specific work on their patients. This should result in an increased income derived from the practice. Further, your employer will increase your wages in proportion to the increase in expected profit, due to the qualification obtained.

Relevant legislative provision

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.

A number of significant court decisions have determined that, for an expense to satisfy the tests in section 8-1 of the ITAA 1997:

§ it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense;

§ there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income;

§ it is necessary to determine whether there is the requisite connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income.

Taxation Ruling TR 98/9 discusses the circumstances in which self-education expenses are allowable as a deduction. Generally, a deduction is allowable for self-education expenses if a taxpayer's 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 in their current employment.

Similarly, if 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, a deduction is allowable.

The decision in FC of T v. Maddalena 71 ATC 4161; 2 ATR 541 supports the Commissioner's view that no deduction is allowable if the study is designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayer's current employment. This would include studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (See paragraphs 15 and 48-62 of TR 98/9).

The Commissioner also believes that obiter comments of Lee J in FC of T v Highfield 82 ATC 4463; (1982) 13 ATR 426 are consistent with the view discussed above. Although not necessary to decide, his Honour discussed whether expenses incurred by a dentist in general practice on a post-graduate degree in periodontics would have been allowable if the study had been undertaken to become a specialist periodontist.

His honour came to no final conclusion on the matter, but recognised that there were equally competing views. On the one hand, such expenses could be said to be allowable on the basis that the dentist was an independent contractor who was attempting to obtain contracts. On the other hand, the expenses would not be allowable because the dentist was attempting to carry on a different income-earning activity or business, and would be in no different position from a person who undertakes study to obtain a job (82 ATC at 4474; 13 ATR at 439). The Commissioner believes the latter view is the correct application of section 8-1 of the ITAA 1997.

In your case, your claim for self-education relates to an alternate income earning activity and falls under the scope discussed in Maddalena's case.

As a general dental practitioner you mainly perform general dental work, even though you perform some very minor specialist work on patients.

While we acknowledge that the knowledge and skills gained from the course could be of some assistance in your general dental practitioner position, the course is designed to open up a new income earning activity as an orthodontist. Therefore there is an insufficient nexus between the course and your income earning activities as a general dental practitioner.

As such all expenses associated with the course are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income, and are not deductible.