Edited version of your written advice

Authorisation Number: 1051367528344

Date of advice: 1 May 2018

Ruling

Subject: Self-education expenses

Question

Will self-education expenses of flight training (pilot licence) be an allowable deduction for an Aircraft Maintenance Engineer?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You completed a X year aircraft maintenance apprenticeship with an airline.

You are currently employed as an aircraft maintenance engineer.

You have completed specialised training courses for particular types of aircraft.

You would like to train as a pilot to develop your maintenance skills and enhance your position as an all-round aircraft maintenance professional.

You are considering two courses (private pilot licence and commercial pilot licence).

Only the commercial licence will provide training in flying the type of aircraft you work on, which would be more relevant to your work.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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.

A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997:

● it must have the essential character of an outgoing incurred in gaining assessable income or, in other words of an income-producing expenses (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)

● 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 (Hatchett’s case).

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business 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; (1961) 8 AITR 406).

Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer 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. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161).

In Hatchett’s case, a primary school teacher was not allowed deductions for university fees incurred on an Arts degree course. The university fees had no connection with activities by which Mr Hatchett gained his income as a primary school teacher. It was not enough that Mr Hatchett’s employer encouraged the taxpayer to undertake the course, nor that the course was likely to make Mr Hatchett a better teacher in a general sense.

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.

In your case, your current duties include dismantling, inspecting, testing, repairing and re-assembling aircrafts and you would like to obtain either a private or commercial pilot licence. It is not a condition of your current position with your employer to hold a pilot licence. Rather, it would be convenient and would give you experience in flying planes. Obtaining a pilot licence would not enable you to maintain or improve your existing skills or knowledge as an aircraft maintenance technician, instead completely new skills and knowledge would be acquired opening up a new income earning activity for you as a pilot.

Therefore any expenses you may incur in obtaining either a commercial or private pilot licence would not be a deductible self-education expense because the expenses will be incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.