Edited version of your written advice

Authorisation Number: 1051176256259

Date of advice: 21 December 2016

Ruling

Subject: Deductions - work related expenses - self education

Question 1

Are you entitled to claim deductions under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for self-education expenses incurred in studying a Master of Laws (XXX)?

Answer

No

This ruling applies for the following periods:

Income year ending 30 June 201X

Income year ending 30 June 201X

Income year ending 30 June 201X

Income year ending 30 June 201X

Income year ending 30 June 201X

The scheme commences on:

1 July 201X

Relevant facts and circumstances

You studied an relevant undergraduate degree majoring in legal studies and politics.

You began studying a Masters of Law (XXX) in early 201X.

The XXX meets the academic requirements for admission as a legal practitioner.

You expect to finish the course in late 201X.

You commenced full time work at a Government department in late 201X.

You ceased working in that role in mid 201X.

At around the same time you commenced work at another Government department. You are employed on a “non on-ongoing” basis.

Your current employer has indicated that they will assist you to apply for new positions within the department upon completion of your studies.

You undertake study outside of work hours.

You use your ordinary and flex leave when you need to attend exams. You are not eligible for study leave.

Your manager has indicated that they would make a recommendation for study assistance on your behalf if you were to become an ongoing employee.

You have incurred expenses for course fees, textbooks and a computer since you started the course.

You are using a FEE-HELP loan to pay your course fees.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax assessment Act 1997 section 6-5

Reasons for decision

Taxation Ruling TR 98/9 sets out the tests for determining when self education expenses can be an allowable deduction under section 8-1 of the ITAA 1997.These tests are based on decisions made by Australian courts in a number of taxation cases.

Self education expenses may be allowable where:

● your income earning activities are based on the exercise of a skill or some specific knowledge and the subject of self education enables you to maintain or improve your skill or knowledge; and/ or

● the study of a subject of self education objectively leads to, or is likely to lead to, an increase in your income from your current income earning activities in the future

Self education expenses will not be allowable if the study is to:

● enable you to get employment;

● enable you to obtain new employment; or

● open up a new income earning activity (whether in business or in your current employment).

Expense incurred in gaining or producing assessable income

For any deduction to be allowable under section 8-1 of the ITAA 1997 you must be able to demonstrate that there is a real and direct connection between the outgoing and the gaining of your assessable income, so that the outgoing is incidental and relevant to the actual activities that gain assessable income.

Expenses relating to study which is undertaken prior to commencing employment are considered to be incurred at a point too soon to be incidental and relevant to your income earning activities.

Application to your circumstances

Generally, you are considered to incur an expense at the time that you owe a present money debt which you cannot escape.

In your case, you began studying the XXX before you were employed by the first Government department. Prior to commencing your employment you had completed X units of study.

When you commenced employment at the first department you were completing X units of study.

The study of the subjects completed before commencing employment, and those you were completing at the time of your appointment is considered to have the nature of placing you in a position to gain employment.

The costs relating these subjects, including those you were completing when employment commenced were incurred at a point to soon to be incidental and relevant to your current income earning activities.

You are not entitled to claim a deduction for these costs.

Self education costs incurred during your periods of employment are considered further below.

Incidental and relevant

If a course of study is too general in terms of your current income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist.

In Case R60, 84 ATC 447 (R60), 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 by the taxpayer 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.

Similarly, in Case Z1 22 ATR 3549; 92 ATC 101 (Z1), 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.

Application to your circumstances

Your situation is similar to the examples given in cases R60 and Z1 above. While legal qualifications may assist you in your current employment duties to some extent, a legal qualification is not a necessary explicit or implicit requirement of your employment.

You are encouraged to undertake study, however you are employed in a non-ongoing capacity and are not entitled to study leave. Your employer allows you to apply for annual leave and to accrue flex leave which you choose to use for study. These types of leave are merely normal conditions of your employment and do not indicate that the study has the necessary connection to your employment to be considered incidental and relevant to your income earning activities.

While your studies provide knowledge and skill that are used in your role, this role does not require qualifications in law.

The XXX 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.

The course of study you have undertaken and in particular those subjects which commenced prior to your engagement, is not considered to be incidental and relevant to your income earning activities and expenses are therefore not deductible under section 8-1 of the ITAA 1997.

Consideration will nevertheless be given to the tests set out in TR 98/9 in relation to the study undertaken during your periods of employment.

Maintains or enhances a skill or knowledge used in current employment

In general, where a person undertakes a course of self-education, a deduction will be allowable where that person is already qualified or skilled in a particular profession and the purpose of the education is to maintain or improve that professional knowledge and skill.

In FC of T v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348 (Finn), Expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was allowable under section 8-1 of the ITAA. The Court recognised that the tour expenses were relevant to the activities by which Mr Finn was currently producing income. It was stated that:

'... a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling.'

Another example of this could be a solicitor who is required to undertake continuing professional development.

Application to your circumstances

In your case, you completed a relevant Bachelor degree majoring in legal studies and politics. Completion of a university major in law would not be recognised as sufficient to allow you to practice law in a professional capacity.

Your situation can be distinguished from the decision in Finn, as you do not already hold a professional qualification or skill which you use in your current occupation as a public servant, which further study in law would either maintain or enhance.

Study results in increase of income

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 may be allowable as a deduction.

For example, in FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557 (Hatchett), expenses incurred by a primary school teacher in relation to gaining a Teacher's Higher Certificate were allowable. The certificate expenses were related to the actual gaining of income because possession of the certificate entitled Mr Hatchett to move to another pay scale and, therefore, to earn more money in the future. It also entitled him to be paid more for doing the same work without any change in grade.

Application to your circumstances

In your case, you are currently employed as a public servant.

You advise that your employer has encouraged you to apply for other positions in different sections of the department upon the completion of your study.

These options involve applying for a different position to your current role and you will not receive an increase in income in your current employment when you complete the course. The study will not lead to an increase in income from your current income earning activities.

Study which enables you to gain employment in a different field to your current employment is discussed further below.

Expense is not deductible if intended to open new field of employment

The decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena) establishes the principle that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to get employment or to obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged.

Application to your circumstances

In your case, you completed a relevant Batchelor degree, majoring in legal studies and politics. This qualification does not entitle you to work as a legal practitioner, but does indicate an interest in the field.

You have stated that you intend to seek future roles in areas which may involve statutory reform or interpretation or creation of policy. You have advised that your employer has encouraged you to pursue specific type of roles.

However, the potential that completion of a degree in law would allow you to be employed in a new field of practice must be considered.

You started studying the XXX before you began working in the first Government department.

This indicates that you intended to pursue this course of study prior to securing employment.

The XXX is designed to meet the academic requirements which are a condition precedent to admission as a legal practitioner.

It is accepted that graduates of this course need to complete additional practical legal training in order to be admitted and practice law. However, without the requisite academic qualifications, this further study is not possible.

We consider your intention in undertaking the XXX has the nature of opening a new field of employment.

Accordingly, the expenses related to this study have been incurred at a point to soon to be an allowable deduction.

You are not entitled to a deduction under section 8-1 of the ITAA 1997 for any expenses related to your study of the XXX.