Edited version of private advice

Authorisation Number: 1051609179169

Date of advice: 27 November 2019

Ruling

Subject: Work-related self-education expenses

Question

Are the following self-education expenses, incurred in studying a Masters from X University, deductible expenses?

1.     Course Fees (that is, the portion of course fees not subject to reimbursement).

2.     Student amenities fees

3.     Travel from home to university and university to home (car - per kilometre)

·        (if travel is from home to the educational institution and then to work, or from work to the educational institution and then home - the first leg only of each journey).

4.     Related books and other reference material, including access fees to any online systems

Answer

Yes

This ruling applies for the following periods:

Year ending XX/XX/20XX

Year ending XX/XX/20XX

The scheme commences on:

XX/20XX

Relevant facts and circumstances

You are employed with Employer X.

Employer X is a public sector organisation that develops, administers and ensures compliance with State A's taxation legislation. These taxes include pay-roll tax, duties and land tax.

You are employed full-time as Role B in Branch C. Branch C delivers audit and investigation services to Employer X.

You have been in this role since XX/20XX.

You work within Team D.

Your work duties include:

·        Assist the team leader with managing and leading a large team of staff

·        Deputising for team leader during temporary absences including managing and overseeing the conduct of sensitive and/or complex investigations by individuals or in teams; setting priorities and managing workloads by effective delegation and managing upwards; and mentoring

·        Provide leadership by assisting in the professional development of investigators through induction, mentoring and training programs and by modelling Employer X values and behaviours integral to good people management

·        Conduct sensitive and complex negotiations with customers to achieve outcomes that are consistent with Employer X objectives

·        Plan, lead, conduct, monitor and report on a complex investigation program of multiple programs and associated actions and participate in investigation programs as required

·        Conduct complex research and provide expert advice on complex taxation matters and other issues arising from investigations, audits and other areas

·        Represent Employer X in dealings with senior executives of public and private sector organisations and Branch C at intra-office forums

·        Review and contribute to policy/legislative/rulings/procedures/strategies development to minimise risk to service delivery

·        Perform reviews of competed investigations in accordance with Branch C procedures

·        Contribute to the planning for strategic compliance activities by participating in the branch business planning process

·        Assist with developing and maintaining Revenue Line Profiles

·        Develop recommendations for innovative approaches to protect revenue streams

·        Provide high-level customer service to internal and external customers

You advised the work involves assessing financial statements of the employers, the business structures and reviewing contractors. You are required to train and mentor other investigators, take on responsibilities of a team in the absence of the team leader or any responsibility delegated by the team leader.

Examples of your leadership duties have been provided and form part of this Ruling.

You are studying an MBA part-time from University Z specialising in your chose field.

University Z MBA is designed to reflect the foundational business knowledge required of an MBA program, career development and employability, leadership and management skills, and an integrative capstone experience where students complete a live case study which synthesises knowledge, concepts and research gained from the study program

Course learning outcomes:

In order to be accepted to undertake the Masters course all applicants must be in a managerial or professional role. Applicants must demonstrate decision making responsibility in a range of areas such as budgeting, staffing, project management, or other relevant professional experience.

The Masters course requires completion of twelve units of study of which eight are core units and four are elective units with the option of applying recognition of prior learning exemptions.

University Z has allowed you X units as credits for prior learning, being X core units and X elective units:

The relevant units have been provided and form part of this Ruling.

You are required to complete the remaining X core units to achieve the qualification, these have been provided and form part of this Ruling.

Employer X is supporting your studies. A signed Employer X "Application for paid study leave/financial sponsorship" form provided confirms reimbursement of a portion of the course fee and providing study leave. In the form the Branch Manager indicates your training and career development needs will be met by providing you with skills beneficial to your Employer X role.

The Employer X Learning Support Package Procedure (LSP) provided covers key information regarding the application including approval. In relation to approval, the LSP must be approved and signed by the applicant's Branch Manager before submission for final approval. Amongst other matters, the Branch Manager is to consider the study/course is relevant to the employee's current or future employment at the Employer X and the relevance to the organisational or branch business needs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Taxpayer Y.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

We are satisfied that the Masters course has the necessary connection to your employment duties as a Role B with the Employer X. It is accepted that the course of study will maintain and improve the skills and knowledge specific to your current work activities.

Therefore the self-education expenses incurred in undertaking this course of study have the necessary connection with earning assessable income. The student amenities fees travel to and from home to the university and books and reference materials are deductible self-education expenses under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Section 8-1 of the ITAA 1997allows 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 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).

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 for his or her current income earning activities in the future, a deduction is allowable.

The deductibility of self-education expenses was also considered by the High Court in FCT v Maddalena 71 ATC 4161; (1971) 2 ATR 541. The High Court held that self-education expenses incurred to obtain new employment or to open up a new income-producing activity do not have a sufficient relationship with a taxpayer's current income-producing activities. They relate to future streams of income, rather than present streams of income, and so are incurred at a point too soon.

In other significant court decisions such as Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478 at 497-498; (1958) 11 ATD 404 at 412, the High Court of Australia has indicated that the expenditure must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense. There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income (Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; (1949) 8 ATD 431 at 435).

If a course of study is too general in terms of a taxpayer's current income-earning activities, the necessary connection between the self-education expenses and the income-earning activity does not exist even if the taxpayer may be 'better' at their income earning activity after the study.

Case U109 87 ATC 657 demonstrates the principle that just because expenditure may lead to the taxpayer being 'better' at their employment does not necessarily mean that the expenditure is deductible. In that case the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He incurred expenditure to undertake a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities and that the expenditure was not deductible.

In your case, in determining whether a deduction is allowable for self-education expenses we have to examine the entire course as a whole in terms of the connection between the course and your income earning activities. If the course as a whole is considered to be relevant and incidental to your income earning activities then the entire course would be deductible.

You are currently employed by the Employer X as a Role B where you undertake a range of activities which utilise accounting and leadership principles, skills and knowledge. For example, you conduct taxation audits requiring assessing financial statements and business structures and people management activities such as assisting in leading a team of staff which includes mentoring and training.

We acknowledge that the learning outcomes, skills and competencies that the whole MBA imparts and develops are applied in your work activities. Therefore the self-education expenses incurred in undertaking this course of study have the necessary connection with earning assessable income. The student amenities fees travel to and from home to the university and books and reference materials are deductible self-education expenses under section 8-1 of the ITAA 1997.

The self-education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. Paragraph 119 to 155 of TR 98/9 provides an explanation of how this provision operates.

To claim a deduction for eligible self-education expenses you must have spent the money yourself. You cannot claim tuition fees paid by your employer. Similarly you cannot claim any portion of tuition fees for which you were reimbursed or for which there is the very real prospect of your being reimbursed (e.g. by prior agreement).

You must have the records to prove your claims. Records you need to keep may include receipts or other documents showing expenses such as course fees, textbooks and stationery. You must also keep receipts, documents and diary entries for travel expenses.