Edited version of private advice

Authorisation Number: 1012652488070

Ruling

Subject: Self-education

Question

Are you entitled to a deduction for the cost of your activity?

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

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commenced on

1 July 2012

Relevant facts

You are employed in the Defence Force.

For the last few years you have been deployed overseas and particularly trained with the overseas Forces to be qualified in a particular field.

Your training has been conducted by your employer. However, your employer is only able to offer a limited number of sessions to you to develop your skills.

In order for you to upgrade your skills you are required to achieve a certain amount of activities before becoming eligible to advance to the next level.

You are currently at level one. There are several levels in this field.

Attaining a higher level will not automatically entitle you to a pay increase.

To be eligible to be an instructor, as well as having attained the top level, you need to be at a certain rank.

You are promoted to the higher rank after you have been fully trained in a large number of competencies and have undertaken the appropriate courses.

Due to the employer's limitations in providing further sessions, you were encouraged by your employer to undertake sessions outside of work.

You were not reimbursed for the expenses of the civilian activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of 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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business 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 you to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

In your case, your employer provides you with the necessary training to undertake your current income producing activities.

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 their current income earning activities in the future, a deduction is allowable.

While we accept that attaining the different levels may contribute to an increase in your income by way of a promotion, it is only one of a number of competencies which must be attained for you to be promoted. The training in itself will not gain you the promotion. Furthermore, you will only be able to use the skills as an instructor after you have gained the promotion.

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.

In your situation, attaining the highest level will open up a new income-earning activity as an instructor once you have been promoted. Consequently you are not entitled to a deduction for the cost your activity.

In Case U109 87 ATC 657 (Case U109), the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return.

The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the general principle in these cases was that the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities. The AAT stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

Your case may be compared with Case U109 in that your pursuit of the activity may be for recreational satisfaction with the added bonus of contributing to a future promotion or future field of work.

You are not entitled to a deduction for the cost of the activity.