Edited version of your written advice

Authorisation Number: 1013054271707

Date of advice: 20 July 2016

Ruling

Subject: Self-education expenses

Question

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 2016

The scheme commenced on

1 July 2015

Relevant facts and circumstances

You are currently a part-time employee of a Student Union of an Australian University.

In 2015/2016 you were employed by the Student Union in various roles.

As part of the Constitution, it requires that you are an ordinary member of the Association and a person will cease to be an Ordinary Member of the association upon ceasing to be a student.

You are currently studying a combined degree at an Australian University.

Your duties include:

Reviewing financial statements

Developing organisational policy

Development and approved budgets

Understanding the financial position and strategic direction of the Association

Evaluation and approving applications of affiliation by clubs and societies, including reviewing club and society constitutions and procedures to ensure they are consistent with the Association's requirements.

You are undertaking the combined degree to improve your skills and employability for occupations that benefit from the legal and/or business skills, such as your roles at the Association.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

It is considered that there is insufficient connection between your university studies and your current income earning activities. Your studies are designed more for your future role rather than to enhance your current employment duties. Accordingly, the self-education expenses associated with undertaking your combined Degree are not an allowable deduction.

Detailed reasoning

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 the combined Degree, 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 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 case. You currently have skills and experience as a part time employee of the Student Union.

While some of the subjects provide knowledge and skill that are used in your role, this role does not require qualifications achieved through the combined Degree. The combined Degree 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 secure future employment 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. You have advised that in order to be employed by the Student Union you are required to be an ordinary member of the association and that this requires you to be a student of the University. However, as discussed above, it is the course of study that must be relevant to your income earning activities and it is considered that the studies undertaken by you are not sufficiently relevant to your present income-earning activities.

Consequently, the self-education expenses incurred in undertaking the Degree 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.