Edited version of private advice

Authorisation Number: 1051627704608

Date of advice: 12 February 2020

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 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You came to Australia on a student visa. Under the student visa there are no work hour limitations.

You are a resident of Australia for taxation purposes.

You are a full-time student completing a PhD.

You started your PhD in 20xx.You will complete your PhD in 20xx.

Completing the PhD will give you a greater chance to secure full-time academic employment.

On completion of your study you hope to be employed by the university as a full-time lecturer.

A full-time lecturer position requires a PhD.

You are currently employed as a casual teacher at the same university where you study. You teach undergraduate students in the same field that study.

You started your teaching role after you started your PhD studies.

Your current position is considered an early academic career position.

Your employer encourages studying a PhD.

Casual teaching positions are only offered to PhD students. They are not advertised to the general public.

Your average teaching hours per week are 20 hours.

You have incurred expenses for your PhD studies.

You receive a non-taxable scholarship from the university for your living expenses.

On completion of your PhD you can apply for a Temporary Graduate Visa, which, if approved will allow you to stay in Australia for up to four years.

You have applied for a permanent residency in Australia and are awaiting the outcome.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings 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.

In considering whether you are entitled to a deduction for the costs incurred in undertaking your PhD, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable income.

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.

However, no deduction is allowable 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. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

The Commissioner also considers that if short term or casual employment is gained after the commencement of a course of education, expenses in relation to the course will not be deductible, even if the employment does have some connection with the course of self-education. In such circumstances, it is considered that the requisite connection between the expenditure and the assessable income is absent, as the expenses of self-education are incurred to gain a qualification. The self-education is not being undertaken to maintain or improve a taxpayer's employment skills.

Paragraph 55 to 57 of TR 98/9 gives examples of industry placement and casual employment taken by university students while studying. The examples state:

Example: Stuart wants to be the manager of a hotel. He 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 in 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.

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.

Example: Shannon, who is undertaking a 4-year university degree in mining engineering, takes a job as a casual employee with a mining company during the end of year holiday period. It is the company's policy to take only students who are pursuing relevant studies. Shannon is not entitled to a deduction for the cost of the course because the study is designed to get future employment in the field. It is incurred at a point too soon.

The issue of self-education expenses and casual employment was considered in in Gupta v. FC of T 2002 ATC 2319 (Gupta's case); (2002) 51 ATR 1205. In this case the taxpayer was an Indian citizen who arrived in Australia in July 1997 (then aged 19) on a student visa, with restricted work conditions. While in India, he attained a Certificate of Proficiency in Information systems and had worked as a trainee technical assistance with mainly data entry responsibilities. The taxpayer enrolled in the Bachelor of Computer Science course at the University of Western Sydney. From about March 1998, the taxpayer also began working on a casual basis at the university's School of Computing and Information Technology as a computer laboratory assistant. After completing his course he remained in the employ of the university as a tutor and researcher. The taxpayer sought deductions in the 1999 and 2000 tax years in relation to his self-education expenses. The Commissioner denied the claims.

The taxpayer objected to his assessments and claimed he was maintaining or improving his skills necessary for his work and there was a direct connection between the expenditure and assessable income. However, the Commissioner claimed that the expenses were incurred to enable him to gain his degree and were not incurred in the process of earning his assessable income as a part-time employee.

The Commissioner's decision was affirmed by the AAT. The AAT held that the essential character of the expenses was to qualify the taxpayer so that he could get ahead within the IT industry to a more highly paid position.

They found that on completion of the degree, the taxpayer would have acquired more highly developed skills, qualifying him to undertake more responsible and demanding work than previously. It was held that the expenses were not incurred in gaining or producing the taxpayer's assessable income from casual work at the university and that the income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon.

In Case VT 90/257, AAT No 7086, the Senior Member found that a student employed as a design assistant studying an interior design course was not entitled to a deduction for self-education expenses. In that taxpayer's circumstances, the member found the course was the prime object and their employment was simply to provide support during the study. The fact that they worked in the same industry as that of their course was not decisive in this case.

In your case you came to Australia on a student visa and are now studying for your PhD. You hope to gain full-time work as a lecturer at the university where you study.

Generally it is considered that taxpayers who undertake studies whilst on a student visa are doing so in order to meet the requirements of their visa.

While you may gain additional knowledge relevant to your casual employment carried out while studying, it is considered that the employment was to support yourself while you undertook the study.

The expenses you incurred for the PhD are considered to have been incurred in the pursuit of obtaining your qualifications and to obtain future employment within your field and not in gaining or producing your assessable income from the casual work you performed while studying.

The income you earned from your casual work was merely incidental to your studies. The PhD provides you with knowledge, skills and qualifications over and above those needed to perform the casual work you were undertaking.

The fact you obtained employment in a related industry as that of your study is not considered decisive. Rather, your circumstances are more aligned to those covered by the examples in paragraphs 55 to 57 in TR 98/9 above and Gupta's case, in that you were studying while working casually. It is considered that your study was to enable you to obtain qualifications that would allow you to secure full-time employment and a more highly paid position at a later date.

Therefore, it is considered that your self-education expenses are not incurred in earning your current assessable income. Rather, they are incurred to enable you to complete your PhD and to seek full time professional work in your chosen field. As such, the expenses are 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.