Edited version of private advice

Authorisation Number: 1051557398463

Date of advice: 6 August 2019

Ruling

Subject: Deductibility of self-education expenses

Question

Are you entitled to a deduction for your self-education expenses under section 8-1 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are currently employed on a full time basis. You commenced this role in January 20xx. Prior to this you were employed from July 20xx - December 20xx.

In your position description you are required to:

·         Have at least 5 years relevant experience and/or

·         Demonstrate your ability to craft and operationalise an idea from concept to implementation with minimal supervision

·         Lead complex projects

·         Possess the capability and willingness to dive deep into the details to understand how things work

·         Analyse large data sets and visualize the "so what" to lead change and achieve results

·         Aptitude for blending quantitative and qualitative data

·         Strong negotiation skills to resolve conflict and inspire change.

In your private ruling application you state that your position requires you to:

·         Lead complex projects

·         Analyse large data sets to identify opportunities for process improvement

·         Negotiate with other departments to create change

·         Be accountable

·         Prepare for and participate in Sales and Operations Quarterly Business Reviews on an on-going basis

·         Utilise expertise

·         Coach and train other staff.

In this role you are also required to represent the region on global initiatives and/or own change management initiatives at the Regional level

You state that by completing the course it will equip you with the required skills to move into the next salary band in your current role which will increase the income that you earn. You did advise that on completion of your Masters that this was not an automatic progress but would be looked on favourably by your employer.

Your employer supports you in completing your studies by providing five paid days leave per calendar year as well as a reimbursement towards your costs.

You commenced your Masters of Business Administration (MBA) studies in August 20xx and enrolled with The University of xxx.

Subjects you have enrolled in to date in include:

·         xxx6001 Leadership Practice and Development

·         xxx6006 Innovation in Strategic Marketing

·         xxx6007 Managing People and Organisation.

Other subjects forming part of your Master of Business Administration include:

·         Leadership Practice and Development

·         Critical Analysis and Thought Leadership

·         Data Analytics and Modelling

·         Strategies for Growth

·         Creativity, Innovation and Business.

You state that you are undertaking this course to develop your core business skills and managerial skills in your current role.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

It is considered that there is a sufficient connection between your MBA studies and your current income earning activities. Accordingly, the self-education expenses associated with undertaking the MBA are an allowable deduction

Detailed reasoning

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.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

·         it 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),

·         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), and

·         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).

Self-education expenses are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities.

Taxation Ruling 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).

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.

No deduction is allowable for self-education expenses if the study is designed to enable the taxpayer to get employment, to obtain new employment or to open up a new income earning activity, whether in business or in the taxpayer's current employment. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) (Maddalena's case).

Where a course is too general in relation to your current employment duties, the necessary connection between the expense and your income earning activity does not exist and no deduction is allowed.

Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

To determine whether circumstances exist which would support your deduction for the MBA studies, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

You currently have skills and experience in managing supply chains as efficiently as possible and are required to drive continuous innovation. In your case, it is accepted that the degree will maintain or enhance the skills that are required in the performance of your current employment duties. Consequently the self-education expenses incurred have the necessary and relevant connection with the earning of your assessable income and therefore deductible.

In your case, your job description states that a Master's Degree is a preferred qualification for the role. Such qualifications are not essential although they may improve your performance in your current employment. The MBA studies provide you with qualifications that are not specific to the Bachelor that you already hold but are undertaken in supporting and developing your management skills in your current role. Therefore they do demonstrate a sufficient relationship to the earning of your assessable income

You can claim a deduction for study and self-education expenses if your course relates directly to your current employment and:

·         maintains or improves the specific skills or knowledge you require in your current employment

·         results in or is likely to result in an increase in your income from your current employment.

Consequently, the self-education expenses incurred in undertaking the MBA studies do have the necessary and relevant connection with the earning of your current assessable income. You are therefore entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.