Edited version of your written advice

Authorisation Number: 1013104218696

Date of advice: 10 October 2016

Ruling

Subject: Work related expenses - self education.

Question

Are you able to claim a deduction for the cost of accreditation courses undertaken whilst you were unemployed, even if the course was booked when you were in paid employment?

Answer

No

Question

Are you able to claim the cost of accreditation courses undertaken whilst you are employed in a related field, even if the course was booked when you were unemployed?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2017

The scheme commences on:

01 July 2016

Relevant facts and circumstances

You are a tradesperson.

You incur expenses to renew current work accreditations.

You are employed on limited work engagements - typically several weeks duration.

The courses must be booked and paid for in advance.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997) Section 8

Reasons for decision

Questions 1 and 2.

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 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.

The basic test of deductibility for an expense is whether the expense relates to the taxpayer's income earning activities. For self-education courses, the relevant income earning activities are those occurring at the time that the self-education is undertaken. If the taxpayer pays for a self-education expense at a different time to when the education actually occurs, the income earning activities at the time of payment is irrelevant.

On the basis of this principle, if the course of education relates to the taxpayer's income earning activities at the time the course is undertaken, the expense will be deductible. Conversely, if the taxpayer is unemployed or employed in an unrelated field at the time of the course, the expense will not be deductible.

Therefore, you will be entitled to claim a deduction for self-education expenses where you are employed in a related field at the time the education is undertaken. Conversely, if you are unemployed or employed in an unrelated field at the time the education is undertaken, you will not be entitled to claim a deduction for the associated expenses.

The deductibility of self-education expenses of a taxpayer who was not in employment at the time the expenses were incurred was considered in FC of T v. MI Roberts 92 ATC 4787; (1992) 24 ATR 479 (Roberts Case).

In Roberts' Case, Mr Roberts, a mine manager, was retrenched by his employer before he undertook an MBA course. Upon completion of the course, he was re-employed as a mine manager by another company at a greater salary than his previous position. The Federal Court applied the principle in Maddalena's Case and disallowed Mr Roberts a deduction for his MBA studies as the expenses were incurred to obtain new employment, rather in the course of employment.

In your case, your employment may be terminated prior to the commencement of your course. Because of the break in your employment, your self-education expenses are incurred at a point too soon to be regarded as incurred in gaining or producing income from your future employment. Consequently, your self-education expenses are not deductible under section 8-1 of the ITAA 1997.

Limit to the deductibility of self-education expenses

You have asked whether section 82A of the Income Tax Assessment Act 1936 (ITAA 1936) applies to reduce the amount of self-education expenses which can be deducted. This section applies if:

(a) course of education is provided by a school, college, university or other place ofeducation, and

(b) the course is undertaken for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade, or in the course of employment.

Based on the information provided in your private ruling application, we are unable to determine if section 82A of the ITAA 1936 applies to your situation. We recommend you read paragraphs 119 to 155 of TR 98/9 which can be found in the Legal Database section of our website www.ato.gov.au.