Edited version of your written advice

Authorisation Number: 1012789625561

Ruling

Subject: Self-education expenses

Question

Are you entitled to a deduction for self-education expenses for the cost of obtaining a basic private pilot's licence?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are an employee.

You are working on a project in an industry.

You are considering obtaining a private pilot's licence as you believe that the knowledge and skills you obtain will assist you in your employment.

You have been in your current role for several months.

Your employer will not pay you an allowance or reimburse you for any expenses in relation to you obtaining a basic private pilot's licence.

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 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 circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

In addition, 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, the self-education expenses are allowable as a deduction.

However, the decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 establishes the principle that no deduction is allowable for self-education expenses if the study is to enable the taxpayer to get employment, obtain new employment or to open up a new income-earning activity (whether in business or 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.

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 expenses and the income-earning activity does not exist.

In FC of T v. Hatchett 71 ATC 4184, a primary school teacher was not allowed deductions for university fees incurred on an Arts degree course. The university fees had no connection with the activities by which Mr Hatchett gained his income as a primary school teacher. It was not enough that Mr Hatchett's employer encouraged the taxpayer to undertake the course, nor that the course was likely to make Mr Hatchett a better teacher in a general sense.

In your case, you are considering obtaining a basic private pilot's licence. You advise that this will assist you in your employment. However, this type of expense is inherently private in nature and consequently, for it to be deductible there must be such a clear and dominant connection with your employment that its private nature is considered to be overridden. In examining whether such a connection exists in your case, it is noted that your employer placed you in your current role without you having a pilot's licence which indicates that they thought you could perform the duties of the position without such a licence. It is also noted that you have been performing these duties for some time without a pilot's licence and that your employer does not consider the licence to be sufficiently connected to your employment to justify them paying you an allowance or reimbursing you for any expenses in relation to it.

Although you may gain some knowledge and skills from the training that could be of some assistance in your work it is considered that there is an insufficient connection between the skills and knowledge required in your current duties and the training that you are considering undertaking. Therefore, the expenses associated with the training are not incurred in earning your assessable income. The expenses are also considered to be private in nature. Consequently you are not entitled to a deduction for the expenses under section 8-1 of the ITAA 1997.