Edited version of your written advice

Authorisation Number: 1051223569965

Date of advice: 10 May 2017

Ruling

Subject: Self-education expenses

Question 1

Are you able to claim self-education expenses in the 20XX – XX financial year?

Answer

No.

This ruling applies for the following period(s)

Year ended 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

In 20XX you were employed as a temporary part time teacher.

In 20XX, you suffered a lost time injury.

Between 20XX and 20XX, you worked in various roles.

In 20XX you were declared unfit for work and began receiving compensation payments.

In 20XX you were guided to begin a Diploma.

In the 20XX year of income you received assessable income.

You have not been employed as a teacher since 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Detailed reasoning

Self-education expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This section allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are of a capital, private or domestic nature.

The Commissioner’s view on the deductibility of self-education expenses is contained in Taxation Ruling 98/9 (TR 98/9). These guidelines have been established through the views taken by the Courts, Boards of Review and Administrative Appeals Tribunals.

In accordance with paragraphs 13 and 14 of TR 98/9, expenses of self-education will satisfy the requirements of section 8-1 of the ITAA 1997 if:

● a taxpayer's income earning activities are based on the exercise of a skill or some specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge; or,

● 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 their current income earning activity in the future.

The High Court of Australia has indicated that the expenditure 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 at 497 - 498). There must be a nexus between the outgoings and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income (Ronpibon Tin NL v FC of T (1949) 78 CLR 47 at 56).

It is necessary to determine the connection between the particular outgoing and the operations by which you more directly gain or produce your assessable income (Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 95 CLR 344; FC of T v Cooper (1991) 21 ATR 1616 at 1624; Roads and Traffic Authority of NSW v FC of T (1993) 26 ATR 76 at 91). Whether such a connection exists is a question of fact to be determined by reference to all of the facts of a particular case.

Therefore, provided there is sufficient connection between your course of self-education and your current income earning activities, you are entitled to claim a deduction for your self-education expenses.

However, as stated in paragraph 15 of TR 98/9, self-education expenses will not be deductible if the study is intended to:

● enable you to get employment,

● enable you to obtain new employment, or

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

This view is supported by the decision of the High Court in FC of T v. Maddalena (1971) 2 ATR 541 (Maddalena’s case), which establishes the principle that no deduction is allowable for self-education expenses if the study, viewed objectively, is designed to enable a taxpayer to get employment or obtain new employment. This is the case even were the new income earning activity is with the same employer or in the same field as the taxpayer is currently employed. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

TR 98/9 provides the following 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.

In your circumstances, you completed a Diploma in 19XX and commenced teaching in 19XX in the Education system. You ceased teaching in 19XX and resumed in 19XX with the Department of Education. You ceased employment as a teacher in 20XX after an incident in the classroom. From 20XX to 20XX you were employed in various roles. You were diagnosed with a syndrome in 20XX, stemming from the incident in 20XX. We acknowledge that since this time, you have been paid as a replacement for salary and wages.

You have undertaken a Diploma for the purpose of attaining a role as a counsellor. At the time of the incident in 20XX you were not, nor are you currently employed as a counsellor and this would be a new income generating activity for you.

While you are currently in receipt of assessable income, your current income earning activities are not in the role of a teacher. In addition we consider that the roles of school teacher and school counsellor are separate and distinct income earning activities. The self-education that has been undertaken will not objectively lead to, nor is it likely to lead to an increase in income from your current income generating activities. As a result of the above factors, you are ineligible to claim a deduction for the expenses incurred in relation to studying the Diploma.