Edited version of your written advice

Authorisation Number: 1013134110445

Date of advice: 5 December 2016

Ruling

Subject: Self education deduction

Question

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

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts and circumstances

You are a registered health professional and are employed in your profession on a part time basis.

You are undertaking a course of study.

As a result of the study you will be able to perform a broader scope of medical procedures including being granted hospital accreditation to perform general procedures for patients under a general anaesthetic as well as surgery.

The course of study, together with ongoing study in the future, will allow you to obtain sufficient qualifications to become a fellow of a specialist medical college.

The degree which you are currently studying for will not, of itself, allow you admission to the specialist medical college.

It is your current intention to continue your practise in your current profession.

You have provided a letter from your employer which supports your study.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

We consider that the course of education you are undertaking is too general in terms of your current income earning activities as a general medical practitioner, and as such, does not have the necessary connection with your current income earning activities.

Detailed reasoning

You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is private in nature (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)).

Expenditure on self-education is deductible under section 8-1 of the ITAA 1997 where the expenditure has a relevant connection to your current income-earning activities. The expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income. There must be a sufficient connection between the expense and the operations or activities which gain or produce your assessable income.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9) sets out the circumstances in which self-education expenses are allowable as deductions, and states that self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income-earning activities. No deduction is allowable if the course of study is too general in terms of the taxpayer's income earning activities and there is not a sufficient nexus between the course of study and the income earning activity.

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, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayers 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 come at a point in time too soon to be regarded as being incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) (Maddalena).

We believe that Maddalena supports our view that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment. In Case Z1 92 ATC 101; AAT Case 7541 (1991) 22 ATR 3549, a public service clerk studying for a law degree later obtained a legal officer position in the public service. Such expenses of self-education were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

We also believe that obiter comments of Lee J in FC of T v. Highfield 82 ATC 4463; (1982) 13 ATR 426 are consistent with this view. 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. We believe that the latter view is the correct application of section 8-1 of the ITAA 1997.

For example, Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist (paragraph 62 of TR 98/9); notwithstanding that a course in dermatology would likely assist her in improving or maintaining her skills or knowledge in her current employment as a general practitioner.

Application to your circumstances

In this case you are currently employed as a registered health professional and are undertaking a specialist medical degree. While you have provided evidence that your employer supports you undertaking this study, this in itself does not create a nexus between the course of study and your current income earning activities. Your employer does not require you to undertake the medical degree to continue your employment as a registered health professional, nor is it mandatory for someone working in your field.

As such, the expenditure incurred for your medical degree comes at a point in time too soon and therefore, it does not have the essential character of expenditure incurred in gaining or producing your assessable income. Therefore you are not entitled to a deduction for the expenses under section 8-1 of the ITAA 1997.