Edited version of your written advice

Authorisation Number: 1051387238463

Date of advice: 19 June 2018

Ruling

Subject: Self-education expenses

Question

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

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You had to cease work for health reasons

You received payments from income protection insurance for the majority of the time you were away from your workplace

You were on unpaid sick leave for a period of time

You were not able to return to your previous role

You undertook a course to become certified a role that had been identified as being more suitable to your physical capabilities and utilising skills you already had. You undertook the course at your own expense

You returned to work with your employer in a new temporary position, in a new field relating to the course you undertook. You later were successful in obtaining a permanent position with your employer in another position

You advised your day to day duties in your new occupation were different from those in your previous occupation

You lodged your income tax return for the applicable year and included self-education deduction expenses

You provided supporting documentation in relation to your self-education claim.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses (TR 98/9) 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.

Paragraphs 42 to 43 of TR 98/9 explain circumstances where study is too general to be considered to be maintaining or improving the skill or knowledge of the taxpayer’s current income-earning activities.

42. 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 expense and the income-earning activity does not exist.

43. Example: Brianna, a company director, was having difficulty coping with work due to stress brought about by difficulties with her family situation. She decided to attend a four-week course in stress management to help her deal with the situation. Brianna attended the course after hours and paid for it herself.

The cost of the course is not allowable because the course was not designed to maintain or increase the skill or specific knowledge required in her current position. The expenses are more correctly characterised as related to a private matter.

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. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (see Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, & 48 62 of TR 98/9).

Paragraphs 59 and 62 of TR 98/9 give examples of circumstances where expenses were incurred to obtain new employment or to open up a new income-earning activity.

59. Example: Joseph is currently employed as a clerk in a public service department. He would like to transfer to a position in another section of the department and undertakes a course of study designed to equip him with the skills needed in that position. The study is unrelated to the skills required in his current position and is not likely to lead to an increase in income. As the study is designed to enable Joseph to enter a new income-earning activity, no deduction is allowable.

62. 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 it is considered that your self-education expenses were not incurred in earning your assessable income. Rather, they were incurred in order to obtain new employment or in opening up a new income-earning activity. Additionally at the time of completing and paying the course you were not working, you were being paid compensation. It is acknowledged that you were receiving compensation or income replacement payments, however, the self-education expenses cannot be said to have a direct impact on this assessable income. It is more related to your future employment income. As such, the expenses were incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997.