Edited version of your written advice

Authorisation Number: 1012674017380

Ruling

Subject: self-education

Question

Are you entitled to a deduction for self-education expenses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

• your private ruling application including job details, and

• further information received.

You are an employee.

You believe you can aid your current employer better if you do some training.

You wish to do training to improve the proficiency of your current duties and to pass this on to other co-workers to improve work overall.

The training would also help in gaining either a promotion or progress in job scales.

The training will be undertaken in your own time and your employer will not be reimbursing any of the costs.

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 Income tax: deductibility of self-education expenses 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).

If a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self-education expense and the income earning activity does not exist.

You are incurring expenses for training. For these expenses to be allowable they must have a direct connection with your income earning activities.

FC of T v. Studdert 91 ATC 5006; (1991) 22 ATR 762 (Studdert's case) considered the deductibility of costs incurred in obtaining a pilot's licence. In Studdert's case, the taxpayer was a flight engineer employed by Qantas, flying in Boeing 747 passenger transport aeroplanes. Flight engineers supervise and regulate the delivery of power to the aeroplane from the jet engines. To carry out this function the flight engineer sits directly behind the first officer, who in turn sits next to the captain with direct access to four levers which control the thrust of the four jet engines of the aeroplane. The taxpayer claimed a deduction for the cost of light aircraft flying lessons leading to a private pilot's licence, which was disallowed by the Commissioner.

The Administrative Appeals Tribunal (AAT) allowed the expenditure on the basis that the flying lessons improved the taxpayer's proficiency in his duties as a flight engineer. The AAT accepted that it was part of the taxpayers duties to understand the overall workings of aircraft flight, and that the flight engineer understands not only his own duties as to the delivery of power, but also the interrelated combination of factors relating to the duties of the pilot which leads to the successful take-off and landing of the aeroplanes.

The Commissioner appealed to the Federal Court, and the appeal was dismissed. It was held that the expenses were relevant and incidental to the activities as flight engineer that directly produced the taxpayer's income. This finding was based on the facts that undertaking the lessons made him better equipped to perform his skilled job and better proficiency was a motivation for undertaking the lessons.

You are an employee. In Studdert's case, the taxpayer was a flight engineer who was actually involved in assisting the operation of the aircraft during flight. It is considered that your duties can be distinguished from the duties of the taxpayer in Studdert's case.

Although some of the content covered in your training may have some relevance to your current employment and your prospects of promotion, there is not a sufficient connection between the training and your income earning activities.

In the case of Assefa v FC of T [2009] AATA 2 (Assefa's case), it was considered whether studying a course of education in order to advance to a higher classification of nursing was opening up a new income earning capacity. The taxpayer in this case was employed as an assistant in nursing and a care service employee while studying a Bachelor of Nursing degree.

The Administrative Appeals Tribunal held in Assefa's case that no deduction was allowable for the self-education expenses. It was determined that there was a significant difference between the position of enrolled nurse and registered nurse on one hand, and personal care assistant/nursing assistant on the other. The taxpayer was not considered to be incurring the expenditure in gaining or producing her assessable income, but was studying towards their initial qualification as a registered nurse.

Although you are in a different field, your case can be compared to Assefa's case in that although the knowledge gained from completing your training may be of some assistance to you in your current employment, this is merely incidental. Furthermore, the training will provide you with skills and abilities far in advance of those that are required in your current employment duties. Your training is not necessary in your current job and it is considered that you will obtain new skills by undertaking the training.

Therefore, it is considered that your training does not have the required connection to your current income-earning activities. The knowledge, skills and abilities gained from the training will assist you in opening up a new income earning activity and is not sufficiently connected to your current duties. The expenses are not being incurred in the course of gaining or producing your current assessable income.

Accordingly, you are not entitled to a deduction for expenses incurred in doing your training under section 8-1 of the ITAA 1997.