Edited version of private advice

Authorisation Number: 1051604886209

Date of advice: 8 November 2019

Ruling

Subject: Work-related professional development expenses

Question

Is money spent on doing clinical observerships/elective rotations tax deductible prior to getting a job with the same employer?

Answer

No

Question

Are the costs incurred to sit an exam in City B for clinical registration to practice tax deductible?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

XX/XX/20XX

Relevant facts and circumstances

You are a foreign trained medical practitioner.

Your 20XX Income Statement shows you received salary and wages from Employer X commencing on XX/XX/20XX.

You reside in City A, State C

You advised:

·         You are currently employed by Employer Y

·         Before you were offered the job, you had to do unpaid, elective placements in the same hospital to help acclimatise to the work environment to learn about the Australian health care system

·         You spent money on doing clinical observerships/elective rotations prior to getting a job with the same employer

·         These electives were undertaken from XX/XX/20XX to XX/XX/20XX and XX/XX/20XX to XX/XX/20XX

·         You were under contract when doing clinical observerships/rotations (also called electives) but not actually being paid

·         As a mandatory requirement for clinical registration (to practice) with Medical Board of Australia, you were required to sit an exam in City B. In July you went to City B to take a clinical exam as part of Australian medical registration process.

The Medical Board of Australia is responsible for regulating medical practitioners practising in Australia.

Australian medical students and doctors seeking to practise medicine in Australia must be registered with the Medical Board.

According to the Medical Board of Australia:

·         Clinical observerships include clinical placements for international medical graduates who are becoming familiar with medical practice in Australia and/or preparing for examinations in Australia.

·         The placements are also known as electives.

·         Clinical observerships are intended to prepare the observer for work in medical practice

Relevant legislative provisions

Income Tax Assessment 1997 section 8-1

Reasons for decision

Summary

Expenses incurred by an employee in obtaining employment or in changing jobs are not deductible because they come at a point too soon to be regarded as being incurred in gaining assessable income. These expenses are initial expenses and are of a capital nature.

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, or relate to the earning of exempt income.

Taxation Ruling TR 98/9 covers the circumstances in which self-education expenses are allowable to individuals under the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997.

Paragraph 15:

The fact that the study will enable a 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) is not sufficient basis in itself for self-education expenses to be deductible. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Paragraph 55:

Provides an example where an individual, Stuart wants to be a manager of a hotel. Stuart enrols in a hotel management course, one semester of which involves an industry placement to gain work experience. Stuart is placed with a major hotel where he gains experience with all facets of hotel management, including catering, housekeeping and bar work. He claims a deduction for the cost of the course against income earned during the placement.

Paragraph 56:

A deduction is not allowable because the study is designed to get Stuart employment as a hotel manager, not derive income from work experience. It is incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Your circumstances are similar to Stuart. You undertook clinical observerships/electives at the hospital to help acclimatise to the work environment and to learn about the Australian health care system. These clinical placements were undertaken in XX/XX/20XX to XX/XX/20XX and XX/XX/ 20XX to XX/XX/20XX. Therefore the associated expenses were incurred whilst undertaking work experience. They were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income as a medical practitioner which commenced on XX/XX/20XX.

Taxation Ruling TR 98/6 paragraph 50 refers to Case Z1 92 ATC 101; AAT Case 7541 (1992) 22 ATR 3549. In this case, the applicant claimed deductions for expenses that led to her admission as a solicitor. The admission expenses included advertising and travelling costs and the practising certificate fee. The Tribunal held that the admission expenses were of a capital nature and were therefore not an allowable deduction under subsection 51(1) of the Income Tax Assessment Act 1936 (which has been replaced by section 8-1 of the ITAA 1997). The admission expenses secured the applicant a 'lasting advantage'. The expenses were incurred in getting, not doing, work as an employee. They came at a point too soon to be regarded as an expense incurred in gaining assessable income.

Your circumstances are similar to Case Z1. You were required to be registered with the Medical Board of Australia before beginning employment to practice medicine in Australia. Even though you were under contract when doing the clinical observerships/electives and undertaking the clinical exam, you could not start earning assessable income until after you obtained the medical registration. The expenses were incurred in getting, not doing work as a medical practitioner.

Accordingly the expenses were incurred at a point too soon, and are not deductible under section 8-1 of the ITAA 1997.