Edited version of your written advice

Authorisation Number: 1012696608474

Ruling

Subject: Self-education

Question

Are you entitled to a deduction for expenses incurred in undertaking a course?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You are a sole trader.

You obtained your ABN recently. The business has not earned any income as yet.

You are doing a course to improve your skills. You hope to finish the course in the next couple of months.

You have previously done related work, however, you are not currently employed.

You will be contracted to perform duties for an entity.

You hope to earn business income in a few months.

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 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.

The deductibility of self-education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for your course, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable 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 the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

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 FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

To determine whether your self-education expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

Self-education courses are generally undertaken to further yourself in a position that you already hold. In your case you are not currently employed and have not started earning business income.

The cost of the course was incurred to improve your skills so that you can commence your business income earning activities at a later date. That is, your business activities had not commenced when you did the course and you were not earning any assessable income in connection with your training at the time.

It is acknowledged that you have previously done related work, however, the course expenses you incurred are considered to have been incurred to obtain future business income and not in gaining or producing your current assessable income. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997.