Edited version of private advice

Authorisation Number: 1051608986208

Date of advice: 21 November 2019

Ruling

Subject: Self-education

Question

Are you entitled to a deduction for the cost of the specific course?

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 previously practised as a X before you left the Bar and practised as a Y.

After practising as a Y for more than 10 years you applied to the State Bar to re-sign the Bar Roll in order to return to practising as a X.

You received a letter from the State Bar stating that as it had been more than 10 years since you ceased practising as a X, you were required to undertake the Bar Readers' course and you are required to have a mentor and undertake a reading period of 6 months (inclusive of the readers' course). The State Bar executive provided you an exemption from the requirement to sit the entrance exam.

You surrendered your Y practising certificate immediately before starting the course because you are not allowed to hold a practising certificate during the course.

You incurred costs of $X,XXX for the course.

You received your practising certificate as an X when you re-signed the Bar Roll on XX/XX/20XX.

You completed your reading period on XX/XX/20XX.

You reactivated your ABN that you used previously when you practised as a X.

As you were re-joining the State Bar, you were treated differently than new Readers in the following ways:

·        You retained your seniority and your original Bar Roll number. Also, if you chose to, you were able to use your original fee book.

·        You were not required to sit the entrance exam.

·        You re-signed the Bar Roll first, ahead of all the other Readers in the signing ceremony in the Relevant Court.

·        You were able to choose which Readers' course to undertake (two courses are run each year - one commencing in March and the other in October).

·        Your reading period was shorter than that for new Readers.

·        You did not have to comply with the guidelines that apply to new Readers when applying for a clerk and associated list.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 40-880

Reasons for decision

All legislative references that follow are to the Income Tax Assessment Act 1997.

Section 8-1 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.

Although capital expenses are not deductible under section 8-1, certain business capital expenditure is deductible, generally over a period of five years, under section 40-880.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9) at paragraph 47 states that expenses related to improving knowledge or skills are not of a capital nature.

Although expenses related to improving knowledge or skills are not capital in nature, TR 98/9 states that no deduction is allowable under section 8-1 for self-education expenses if the study is to 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). 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. In other words, a taxpayer may only be allowed a deduction for self-education expenses they incur in relation to their current income-earning activity.

It is acknowledged that you had previously worked as a X and because of this, the State Bar made several concessions to you with respect to the normal requirements for admission to the Bar. You contend that as you had worked before as a X, completion of the Bar Readers' course did not open up a 'new' income earning activity.

However, you last worked as a X more than 10 years ago, and due to the length of time that had passed, the Victorian Bar would not allow you to practise again as a X unless you undertook the Bar Readers' course. So although practising as a X was not a 'new' activity in the sense that you had worked as a X previously, it was 'new' in that at the time you incurred the course expenditure, you were not currently working as a X. The expenditure did open up a 'new' income-earning activity as completing the Bar Readers' course enabled you to obtain your practising certificate as a X.

Also, although the knowledge gained from the Bar Readers' course may be useful for a Y, you did not incur the course expenditure to assist you in your then current income-earning activity as a Y as you had to surrender your Y practising certificate immediately before starting the course.

It is not considered that the course expenditure was incurred in the course of gaining your future income as a X, rather it was incurred to put you in a position so that you could earn that future income. Therefore, the cost of the Bar Readers' course was incurred at a point too soon for it to be deductible under section 8-1.

As previously stated, expenses related to improving knowledge or skills are not capital in nature. As section 40-880 only applies to capital expenditure, a deduction is not allowable under that provision for the cost of the Bar Readers' course.