Edited version of your written advice

Authorisation Number: 1012922095581

Date of advice: 10 December 2015

Ruling

Subject: Self education expenses

Question 1

Are you entitled to a deduction for your self-education expenses incurred in undertaking a course?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are employed in a law enforcement organisation.

Your role is to provide advice to business units within your organisation on a range of issues.

In 20XX, you enrolled in a course.

This qualification is required for admission to practice in your chosen profession.

The course commenced in 20XX and was completed in 20YY, and you were then admitted as a professional in your field.

The course was undertaken with the intention of gaining a promotion within your organisation to obtain a higher level of pay.

You receive an allowance in addition to the standard pay rate in recognition of your qualification.

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.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

• 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), and

• 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).

Self-education expenses are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities.

Taxation Ruling TR 98/9 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.

No deduction is allowable for self-education expenses if the study is designed to enable the 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. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) (Maddalena's case).

Where a course is too general in relation to your current employment duties, the necessary connection between the expense and your income earning activity does not exist and no deduction is allowed.

Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

To determine whether circumstances exist which would support your deduction for your course, 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.

In Case R60, 84 ATC 447 the Board of Review disallowed self-education expenses. The taxpayer was a public servant and the position required relevant experience or some legal training (which the taxpayer already had) but not legal qualifications as such. In the circumstances, the continuation of the taxpayer's legal studies could not be characterised as a relevant incident of or as part and parcel of his employment.  While the legal studies were specified as an advantage for the position held and the taxpayer's legal training was relied on by the branch he was in, if the studies were discontinued, the branch would not have reacted at all. The branch head saw the encouragement given to the taxpayer as part and parcel of normal staff development.

In Case Z1 22 ATR 3549; 92 ATC 101, a public service clerk studying for a law degree later obtained a legal officer position in the public service. The qualifications as a solicitor were not necessary for her current employment. The expenses were held to have been incurred in getting work as a legal officer not in doing work as an employee and therefore not deductible. At all times the taxpayer was employed in a position where such qualifications were not necessary although the gaining of such qualifications were encouraged. The course was pursued by the taxpayer of her own choice and for her own self-improvement.

Your situation is comparable to the above cases. You currently have skills and experience working in your organisation. Your employer currently employs a suitably qualified person to supervise your work.

While some of the subjects provide knowledge and skill that are used in your role, this role does not require specific qualifications. The course will provide you with qualifications that are far in excess of the requirements of your current position and cannot be said to be sufficiently related to your current employment duties.

Although the course may have some benefit to you in your current work, that benefit is only incidental as your studies are providing you with knowledge and skill in a position you are not currently employed. Your studies are designed more for your future role rather than to enhance your current income earning activities.

It is considered that the decision in Maddalena's case applies to your situation. Your studies will assist you to provide advice in the future for your employer and have been incurred at a point too soon. As highlighted above, where a course is undertaken to open up another source of income earning potential from the qualification, a deduction is not generally allowable. Your studies will give you new qualifications and enable you to obtain employment in a different field. The studies are regarded as not being sufficiently relevant to your present income-earning activities.

Consequently, the self-education expenses incurred in your course do not have the necessary and relevant connection with the earning of your current assessable income. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.