Edited version of your written advice

Authorisation Number: 1012766183051

Ruling

Subject: Self-education expenses

Question 1

Are you entitled to a deduction for the costs incurred to undertake the minimum flying hours (12 hours) as a self-education expense?

Answer

Yes.

Question 2

Are you entitled to a deduction for the costs incurred to fly with an instructor as a self-education expense?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You are employed as a flight engineer.

As part of your job you are required to assist the pilot with the operation of the aircraft and to ensure flight safety is maintained.

You have improved your skills by obtaining and maintaining your pilot's licence which requires a minimum of 12 hours flying each year.

You also spend up to four hours per year on average with an instructor in order to improve your proficiency.

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.

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. Self-education expenses are deductible where they have a relevant connection to the taxpayer's current income earning activities.

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 taxpayer's 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).

In Commissioner of Taxation v. Studdert (1991) 91 ATC 5006; (1991) 22 ATR 762; (1991) 33 FCR 75 (Studdert's case) the issue of pilot training for a flight engineer was considered. The Federal Court agreed with the AAT in finding that there was relevant connection between the expenses of the pilot training and the activities as a flight engineer. It was part of the duties to understand the overall workings of aircraft flight. The lessons made the flight engineer better equipped to perform his skilled job and better proficiency was a motivation for undertaking the lessons.

Your circumstances are comparable to those in Studdert's case. Your flight engineer position requires you to have knowledge and skills of aviation and flying to perform your duties.

As there is a relevant connection between your training and increasing the knowledge and expertise required in your position, you are entitled to a deduction for self-education under section 8-1 of the ITAA 1997 for the cost of undertaking the minimum flying hours and to fly with an instructor.