Edited version of your private ruling

Authorisation Number: 1012537929143

Ruling

Subject: Rental - deductions (repairs, capital works, interest, borrowing expenses)

Question 1

Are you entitled to claim a deduction for the costs of completing a course which you intend to use when you purchase investment properties in the future?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts and circumstances

You have recently purchased an investment property and intend to purchase more in the future.

You wish to complete a course so you are able to minimise costs for future purchases of investment properties.

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 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.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431 the High Court stated that:

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.

Taxation Ruling TR 98/9 discusses the circumstances under which self education expenses are allowable as a deduction. A deduction is allowable 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.

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 designed to enable a taxpayer to open up a new income-earning activity. Such expenses of self education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (Federal Commissioner of Taxation v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

Similarly, Taxation Determination TD 95/60 states that expenditure on setting up an investment portfolio or commencing share trading activities is incidental and relevant to outlaying the price of acquiring the investment. The expenditure is incurred at a point too soon for a deduction to be allowed.

In your case, it is accepted that the knowledge that you will gain during, and at the completion of your course, will be of benefit to you when you acquire your next property.

However, it is considered that your course fees will be incurred at a point too soon, as the knowledge you will gain does not relate to investments from which you are currently earning assessable income. Rather, the expense relates to properties which you are currently not earning income from.

Therefore, the costs of the course will not be an allowable deduction as it will be incurred at a point too soon.