Edited version of your private ruling

Authorisation Number: 1051636854902

Date of advice: 9 September 2020

Ruling

Subject: University course fees - self education - casual employee

Question

Are you entitled to a deduction for your university course fees?

Answer

No.

This ruling applies for the following period

Year ending 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

You participated in a 12 month university employment program with an organisation.

The terms of the program did not provide for any ongoing employment with the organisation at the end of the program.

To be eligible for the program you were required to meet certain requirements which included studying a bachelor's degree or above.

You satisfied the requirements and were successful in obtaining a position in the program.

You were employed on a casual basis and placed in a work area relevant to your studies.

You incurred university course fees during the period you were casually employed.

To be able to continue in the program you had to continue to meet the eligibility requirements.

You are now employed by the organisation on a full-time basis in a different position.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

The income earned from your casual employment was merely incidental to your studies. The university course fees were incurred at a point too soon and are not deductible.

Detailed reasoning

You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital, private or domestic in nature, or relates to the earning of exempt income (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)).

The preposition 'in' found in the phrase 'in gaining or producing' has long been understood as meaning 'in the course of' gaining or producing. In Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; (1949) 8 ATD 431 the High Court held that for a loss or outgoing to be deductible it is:

'both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income'.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9) sets out the circumstances in which self-education expenses are allowable as deductions where the entitlement to income arises from employment or business.

However, TR 98/9 does not address the deductibility of self-education expenses incurred by the recipient of an assessable allowance where entitlement to the allowance is conditional on the recipient undertaking a course of education, as in Commissioner of Taxation v Anstis (2010) 241 CLR 443; (2010) 76 ATR 735; 2010 ATC 20-221 (Anstis) (paragraph 3 of TR 98/9).

The circumstances in Anstis were quite different from those in the majority of the large body of cases dealing with the deductibility of self-education expenses. The taxpayer was not carrying on a business or already in employment to which the studies related. The question was whether the occasion of her expenses was productive of her 'passive income' (Youth Allowance). The motive of the taxpayer in studying to obtain a qualification to undertake future employment as a teacher was not determinative of whether the expenses were incurred in gaining or producing the income.

The High Court found that the notion of 'gaining or producing' assessable income in section 8-1 of the ITAA 1997 is wider than those activities which may be said to earn income, and can be said to extend to 'obtain, secure or acquire'. The taxpayer was not paid to undertake study rather the assessable Youth Allowance was gained or produced by their entitlement to the Youth Allowance under the terms of the social security legislation. The occasion of the study expenses was to be found in what the taxpayer did to establish and retain her statutory entitlement to the receipts.

The decision in Anstis is consistent with the principles set out in TR 98/9; self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's income-earning activities (paragraph 12 of TR 98/9). Essential to the inquiry of deductibility is the identification of that which is productive of the assessable income. To put it another way, one must ask how the assessable income was (or was expected to be) gained or produced.

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 (paragraph 13 of TR 98/9).

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 (paragraph 14 of TR 98/9).

However, 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 (paragraph 15 of TR 98/9).

In your case, unlike the taxpayer in Anstis, you do not receive or earn any income from being enrolled fulltime in a course of study. So Anstis is not directly applicable to your circumstances.

Studying a bachelor's degree or above and meeting the other requirements to be eligible to participate in the university employment program are all conditions of your employment. The fulfilment of these conditions does not in itself give you a right or entitlement to receive any income; rather it puts you in a position to be able to 'gain or produce' income from the performance of the duties of your casual employment.

An expense that is a prerequisite to the earning of income does not become deductible only because of an employer's requirements to incur the expense. The employer's requirements do not determine the question of deductibility. This question is always to be answered by reference to the statutory test which involves an objective determination of the connection between the expense and the employee's income-earning activities.

As such, if the expenditure is not deductible in accordance with the principles outlined in TR 98/9, the expenditure on the course fees will not be deductible under section 8-1 of the ITAA 1997.

The issue of self-education expenses and casual employment was considered in Gupta v. FC of T 2002 ATC 2319; (2002) 51 ATR 1205 (Gupta). The taxpayer was an Indian citizen who arrived in Australia in July 1997 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 assistant 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. At various times until July 2000 he held the positions of laboratory assistant, user support, demonstrator, and exam supervisor among others.

After completing his course, he remained in the employ of the University as a tutor and researcher. The taxpayer sought deductions in the 1998-99 and 1999-2000 financial 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.

Your circumstances are comparable to the taxpayer in Gupta. While your studies may have helped you in your casual employment, it is considered that the employment was obtained to support yourself while you were studying and the income from that employment was merely incidental to the studies. Viewed objectively, the expenses you incurred were incurred in the pursuit of obtaining qualifications that would allow you to secure full-time employment and a more highly paid position at a later date (participation in the university employment program is limited to a maximum of 12 months) and not in gaining or producing your assessable income from the casual employment.

As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income. You are not entitled to a deduction for the course fees under section 8-1 of the ITAA 1997.