Edited version of your written advice

Authorisation Number: 1012708876851

Ruling

Subject: Self-education

Question

Are you entitled to a deduction for the costs associated with flying lessons and travel costs?

Answer

No

This ruling applies for the following period

30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

You are employed as a airline employee flying aeroplanes.

You have undertaken flying lessons on a single seat aeroplane.

You have incurred the cost of flying lessons, travel, accommodation and travel insurance.

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, 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 income-earning activities are based on the exercise of a skill or some specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge.

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.

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.

You are a pilot flying passenger aeroplanes. You have undertaken flying lessons on a single seat aeroplane. For these expenses to be allowable they must have a connection with your income earning activities.

You have argued that FC of T v. Studdert 91 ATC 5006; (1991) 22 ATR 762 (Studdert's case) which considered the deductibility of costs incurred in obtaining a pilot's licence applies to your situation.

In Studdert's case, the taxpayer was a flight engineer employed by Qantas, flying in Boeing 747 passenger transport aeroplanes. Flight engineers supervised and regulated the delivery of power to the aeroplane from the jet engines. To carry out this function the flight engineer sat directly behind the first officer, who in turn sat next to the captain with direct access to four levers which controlled 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 taxpayer's duties to understand the overall workings of aircraft flight, and that the flight engineer understands not only his 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 a 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.

Your situation can be distinguished from Studdert's case because in that case, the taxpayer was a flight engineer (and not a pilot) who was involved in assisting the operation of the aircraft during flight. In your case, you are already a pilot and the nexus between lessons to learn to fly a single seat aircraft and the earning of your assessable income is considered to be insufficient.

Although you may gain some knowledge and skills from the flying lessons that could be of some assistance in your general work it is considered that there is an insufficient connection between the skills and knowledge required in your current duties and the single seat flying lessons.

As there is an insufficient nexus between the lessons and your current income earning activities, the associated course expenses are not incurred in earning your assessable income. Consequently you are not entitled to a deduction for the expenses.