Edited version of your written advice

Authorisation Number: 1012930462434

Date of advice: 21 December 2015

Ruling

Subject: Self education expenses

Question 1

Are you entitled to a deduction for your self-education expenses?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are in the medical field.

You are currently employed on a part time basis.

As part of your continuing professional development, you are completing further study at university.

This course will enable you to perform a broader scope of procedures. You will be able to increase your income as qualified specialists are generally remunerated at a higher rate.

The course of study will allow you to obtain specialist qualifications and become a fellow of your industry organisation.

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 in 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 in which self-education expenses are allowable as a deduction. Generally, 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 the self-education enables the taxpayer to maintain or improve that skill or knowledge in their current employment.

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, 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.

In your application, you have referred to the case of FC of T v.Highfield 82 ATC 4463; (1982) 13 ATR 426 (Highfield's Case) as supporting your opinion that the expenses are deductible as a self-education expense.

The Commissioner also believes that obiter comments of Lee J in FC of T v Highfield 82 ATC 4463; (1982) 13 ATR 426 are consistent with the view discussed above. Although not necessary to decide, his Honour discussed whether expenses incurred by a dentist in general practice on a post-graduate degree in periodontics would have been allowable if the study had been undertaken to become a specialist periodontist.

His honour came to no final conclusion on the matter, but recognised that there were equally competing views. On the one hand, such expenses could be said to be allowable on the basis that the dentist was an independent contractor who was attempting to obtain contracts. On the other hand, the expenses would not be allowable because the dentist was attempting to carry on a different income-earning activity or business, and would be in no different position from a person who undertakes study to obtain a job (82 ATC at 4474; 13 ATR at 439). The Commissioner believes the latter view is the correct application of section 8-1 of the ITAA 1997. 

In your case, your claim for self-education relates to an alternate income earning activity and falls under the scope discussed in Maddalenas case.

In your case, you are undertaking a degree and it is considered that there is an insufficient connection between the skills and knowledge required in your current duties and the course that you are undertaking. Although you may gain some knowledge and skills from the subjects studied that could be of some assistance in your work, it is considered that the study is designed to enable you to open up a new income earning activity.

As the study is designed to enable you to open up a new income earning activity and there is insufficient nexus between the course of self-education and your current income earning activities, the self-education expenses associated with the course are not incurred in earning your assessable income. Consequently you are not entitled to a deduction for the expenses under section 8-1 of the ITAA 1997.