Edited version of private advice

Authorisation Number: 1051635913166

Date of advice: 28 February 2020

Ruling

Subject: Work-related self-education expenses

Are the expenses incurred to undertake a diving course deductible against salary and wage income?

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 commenced employment with your employer on XX/XX/20XX in role A. A Contract of Casual Engagement dated XX/XX/20XX was provided for this position as follows:

·        Commencement date: XX/XX/20XX

·        Completion date: On-going casual work

·        Project: Project A

·        Modern Award: Professional Diving Industry (Industrial) Award 2010

·        Modern Award Classification: Diver's attendant

·        Gross casual wage rate: AUD $XX.XX flat rate per hour for all hours worked (inclusive of X% casual loading)

·        The employer's job description was not provided but you provided the following list of tasks:

·        Developing knowledge of diving equipment and how it works.

·        Checking and maintaining diving equipment such as helmets, masks, air tanks, harnesses and gauges.

·        Cleaning equipment after every dive.

·        When on dive jobs, communicating with workers underwater, using signal lines or voice communications.

·        Maintaining and cleaning vessels and other company equipment.

·        Preparing equipment for dive jobs and assisting diver's with getting into their equipment.

·        Having appropriate first aid and emergency training to assess diving casualty and assisting with treatment of diving conditions

You provided a Contract of Casual Engagement dated XX/XX/20XX for the position of Role B as follows:

·        Commencement date: XX/XX/20XX

·        Completion date: XX/XX/20XX

·        Project: Project B

·        Modern Award: Professional Diving Industry (Industrial) Award 2010

·        Modern Award Classification: Diver

·        Gross casual wage rate: AUD $XX.XX flat rate per hour for all hours worked (inclusive of X% casual loading). Or as per the schedule below:

The employer's job description was provided outlining relevant tasks and competencies.

You provided a Letter of Variation dated XX/XX/20XX for a Casual offer of Engagement for the position of a Role B as follows:

·        Commencement date XX/XX/20XX

·        Completion date XX/XX/20XX

·        Project: Project C

·        Modern Award: Professional Diving Industry (Industrial) Award 2010

·        Gross Daily casual wage rate: AUD $XXX.XX per day worked (inclusive of X% casual loading)

You provided a Letter of Variation dated XX/XX/20XX for a Casual offer of Engagement for the position of a Role B as follows:

·        Commencement date XX/XX/20XX

·        Completion date XX/XX/20XX

·        Project: Project D

·        Modern Award: Professional Diving Industry (Industrial) Award 2010

·        Gross Daily casual wage rate: AUD $XXX.XX per day worked (inclusive of X% casual loading)

You undertook a commercial diving course with the course provider located State A. You commenced the course on XX/XX/20XX and completed the course on XX/XX/20XX.

The course comprised three units. A brief description has been provided.

You advised you were originally employed by your employer in Role A. Your employer arranged for you to undertake various courses that would meet the prerequisites for the course provider training being: obtaining a Diver medic certificate; current first aid certificate including CPR and Oxygen resuscitation skills and having evidence of 10 logged dives.

Your employer arranged for you to participate in and complete all the prerequisites for the course provider training whilst employed such as completion of open water dive course, completion of the necessary diver medical certificates and the logged dives which were undertaken primarily during work with your employer.

From the outset the intention was to become a qualified underwater diver and your employer encouraged and promoted whatever was necessary to promote that.

Prior to undertaking the course provider training you were involved in smaller dive operations that did not require formal course provider training.

Your employer was directly involved in arranging of enrolling for the training and gave three months off to complete the training.

After completion of the training, you were provided work that was a mixture of some of the tasks performed prior to the training and more complex dive jobs.

Current work involves diving jobs around City A, City B, City C and City D. Work involves travel to various ports.

Employment prospects and income earning capacity with the employer were significantly increased once the qualifications were obtained.

Employment contracts are annual and renewed each year or when specific project is required. Your employer has provided ongoing work since commencement with them in about June 2019 and anticipates working with them well into the future.

Expenses sought to be claimed are course fees, travel and accommodation for training in State A, food during training and equipment. The expenses totalled $XX,XXX.XX and were outlined as follows:

You advised there was no reimbursement for any of the expenses incurred.

You advised the course ensured that you maintained and increased your knowledge in the following skills:

·        Undertaking pre-dive preparation for scuba diving operations

·        Utilising and maintaining scuba equipment

·        Assessing diving casualty and assisting with treatment of diving conditions

·        Working effectively in the occupational diving industry and contributing to the health and safety of myself and others

·        Implementing emergency procedures

·        Undertaking pre-dive preparations for surface supplied diving operations

·        Utilising and maintaining surface supplied dive equipment'

·        Maintaining effective working relationships with dive or hyperbaric operations team

·        Working safely in off-shore diving operations.

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 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 (TR 98/9) discusses the circumstances under which self-education expenses are allowable as a deduction. Paragraphs 12 to 15 of TR 98/9 provide:

12. Self-education expenses are deductible under section 8-1 where they have a relevant connection to the taxpayer's current income-earning activities.

13. If a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

14. 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, the self-education expenses are allowable as a deduction.

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 a 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.

The deductibility of self-education expenses was 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.

Paragraphs 57, 59 and 62 of TR 98/9 are particularly relevant:

Paragraph 57:

Provides an example where an individual, 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.

Paragraph 59:

Provides an example where an employee, Joseph is currently employed as a clerk in a public service department. He would like to transfer to a position in another section of the department and undertakes a course of study designed to equip him with the skills needed in that position. The study is unrelated to the skills required in his current position and is not likely to lead to an increase in income. As the study is designed to enable Joseph to enter a new income-earning activity, no deduction is allowable.

Paragraph 62:

Provides an example where an individual, Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist.

These examples highlight a deduction is not allowable for self-education expenses if the subject of self-education is designed to get employment, to obtain new employment or to open up a new income-earning activity. You have similar circumstances to these examples. You were employed in the professional diving industry. You undertook the commercial diving course from XX/XX/20XX to XX/XX/20XX at which time you were employed on a casual basis in Role A. Once you completed the course and obtained the qualification you commenced employment in a different role in Role B on XX/XX/20XX.

To determine whether circumstances exist which would support your deduction for the commercial diving course 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 were undertaking at the time you undertook the course and incurred the expenditure. Your income earning activities at the time were that of Role A.

The purpose of the diving course was to enable participants to become qualified as a commercial construction diver. Some of the skills and competencies that the course imparted include descending into the water to dive to depths of 30 m, 40 m and 50 m with the aid of diver helpers, cut and weld steel, use welding and cutting equipment, use pneumatic and hydraulic tools, use salvage equipment and other construction tools. While some of the focus areas of the course may enhance knowledge and skills of Role A, the main focus of the course is to qualify participants as construction divers whose skills and competencies are not the core of Role A work.

Although your employer supported you to undertake the course, such qualifications were not essential in your employment in Role A. The course may have some benefit to you in your work at the time, however that benefit is only incidental. The diving course was predominately designed to equip you with the knowledge and skills needed to get future employment in Role B rather than to enhance your then current income earning activities. In Role A you were not required to have a current course provider qualification. The course provided you with qualifications that are far in excess of the requirements of your position at the time.

Whilst your income increased upon completion of the self-education, the increase in income occurred because you obtained a new income earning opportunity in Role B. The increase in income did not occur and was unlikely to occur when you were employed in Role A.

As highlighted above, where a course is undertaken to open up another source of income earning potential from the qualification, a deduction is not generally allowable. The diving course provided you with the skills and competencies to earn assessable income as a commercial diver. The course was not sufficiently relevant to your income-earning activities at the time you undertook the course. Accordingly the expenses were incurred at a point too soon, and are not deductible under section 8-1 of the ITAA 1997.