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Ruling

Subject: Self-education expenses

Question

Are you entitled to a deduction for self-education expenses to gain a private pilot licence?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You work full time as a senior work place trainer, assessor and branch coordinator.

You commenced a Private Pilot Licence course with an aero club.

The costs of the course are being paid by you.

Your employer supports your decision to undertake the course but has not provided any allowances or other financial assistance to you.

You have undertaken this course on your own initiative as it will be a significant advantage to your future development in your role as a senior trainer assessor allowing you to access remote sites to deliver training in Indigenous areas.

Your employer is aware of your intentions and the future potential for the business with ability to be able to deliver more flexible training arrangements to isolated communities and business ventures alike.

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 or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature.

A number of significant court decisions have determined that, for an expense to satisfy the tests outlined 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 expenses (Lunney v FC of T (1958) 100 CLR 478);

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 (Ronpibon Tin NL v FC of T (1949) 78 CLR 47)

it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 95 CLR 344; FC of T v Hatchett 71 ATC 4184 (Hatchett's case).

Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a 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 (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348; (1961) 8 AITR 406).

Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer 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, whether in business or in the taxpayers current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161).

In Hatchett's case, a primary school teacher was not allowed deductions for university fees incurred on an Arts degree course. The university fees had no connection with activities by which Mr Hatchett gained his income as a primary school teacher. It was not enough that Mr Hatchett's employer encouraged the taxpayer to undertake the course, nor that the course was likely to make Mr Hatchett a better teacher in a general sense.

In your case your current duties include training and assessing clients work place skills and health and safety and you wish to obtain a private pilot licence. It is not a condition of your current duties as a senior trainer assessor with your employer to hold a pilots licence. Rather, it would be convenient and would enable your employer to deliver more flexible training services to isolated communities. It would also open up a new income earning activity for you as a pilot.

It is acknowledged that by obtaining your private pilot licence will be of a significant advantage to your future development and the prospect of increased business for your employer as a consequence of the successful completion of the course. However, it cannot be said that the expenses are being incurred in the course of gaining or producing your assessable income.

Thus, you are unable to claim self- education expenses under section 8-1 of the ITAA 1997 because the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.