Edited version of your written advice

Authorisation Number: 1012771278943

Ruling

Subject: Work Related Expenses - Self education

Question 1

Are the costs for re-qualifying as a professional in Australia an allowable deduction?

Answer

No

Question 2

Can these expenses be carried forward to a future year?

Answer

No

Question 3

Can these expenses be claimed as a cumulative total in the 2014/15 financial year?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an overseas trained professional.

You arrived in Australia in 20YY.

In order to commence working as a professional in Australia, you incurred expenses relating to exams, books, study material, courses, travel and accommodation in the relevant years.

You state that all these expenses were essential to work as a professional in Australia.

During this period you had no income and all these expenses were covered by your spouse's own income.

You commenced work in 20ZZ.

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.

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 expense (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 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 the 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 the current income-earning activities.

Self-education courses are generally undertaken to further yourself in a position that you already hold. In your case you were not working as a professional at the time the expenses were incurred.

In your case, the cost of gaining the necessary qualifications to enable you to work as a professional in your field in Australia was not incurred in doing work in this field. Rather, the successful completion of the exams to gain your Australian qualifications will open up a new income earning activity. Such expenses provide a lasting benefit and are considered to be capital in nature.

The expenses were incurred to obtain future income rather than gaining or producing your assessable income at that time. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and are not deductible under section 8-1 of the ITAA 1997. 

It follows that as these expenses are not allowable deductions, they cannot be carried forward or accumulated, to be claimed in any future years.