Edited version of your private ruling

Authorisation Number: 1012457257175

Ruling

Subject: Self-education expenses

Question

Are you entitled to a deduction for self-education expenses incurred during the year ended 30 June 20XX?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

You had a number of years' experience in your area of employment outside of Australia.

You came to Australia during the year ended 30 June 20XX to further continue your career in this area.

You needed to obtain knowledge about the Australian business environment, taxation and legal issues to gain entry into the Australian domestic market.

You also needed to up-skill and complete a full-time degree as a pre-requisite to progression in your profession.

You commenced your studies after arriving in Australia.

During the year ended 30 June 20YY you commenced work with an Australian firm in your area of employment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

The costs associated with your education were incurred during the period in which you were unemployed. Whilst it is accepted that you had worked in your area of employment overseas and the education allowed you to obtain employment in the same field in Australia, the self-education expenses were not incurred in gaining or producing your assessable income. Accordingly you are not entitled to claim a deduction for self-education expenses for the year ended 30 June 20XX.

Detailed reasoning

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 discusses 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. The phrase 'current income-earning activities' refers to the income-earning activities of the taxpayer at the time the self-education expenses were incurred.

Similarly, if 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 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 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. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161).

In your case, at the time you undertook the educational studies you were unemployed. Therefore, at that time, your studies were not undertaken to maintain or improve an existing skill or knowledge used in your 'current' income-earning activities. Nor can it be said that the subject of your studies 'objectively led to, or was likely to lead to' a future increase in income from your 'current' income-earning activities.

The principle in Maddalena above applies. That is, the expenses associated with your studies are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income

Accordingly, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for your self-education expenses incurred to undertake educational studies.