Edited version of private advice

Authorisation Number: 1051687898609

Date of advice: 27 May 2020

Ruling

Subject: Work-related self-education expenses

Question

Are you entitled to claim a tax deduction for the repayment of training costs sponsored by your employer as part of your employment?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2018.

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are a former employee of Company Z.

You are a professional.

You had to agree to do a training course, and to the conditions of a training bond, as a condition of your gaining employment with Company Z.

The training was provided by a company. As a result of the course you received a license.

You would not have been legally able to practice in Australia without completing the course and, therefore, would have been unable to do the job.

The course was sponsored by Company Z.

The terms of the sponsorship, contained in the Training Bond Agreement, were as follows:

Company Z paid the training costs for you.

The course was undertaken at the commencement of your employment.

A training bond was applied.

The terms of the bond dictated that if you chose to terminate employment with Company Z within 24 months, you would reimburse Company Z for the cost of the training at a pro-rata rate based on 24 months from the date of the completion of the training.

The Company Z Enterprise Agreement also contains these conditions under the heading "Repayment of training costs where a pilot is in breach of conditions.

You did not continue employment with Company Z for 24 months after the completion of the course.

On the termination of your employment Company Z requested repayment of the balance of the bond.

If you had remained employed with Company Z for 24 months you would not have had to reimburse anything.

Your completing the course led to an increase in pay.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

The repayment of self-education expenses to your former employer is not an allowable deduction as it was incurred as a result of breaching the terms of your employment contract, not in producing assessable income.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 4 AITR 236; (1949) 8 ATD 431 the High Court stated that:

'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income.'

The expenditure must therefore be related to the production of assessable income.

Tax Ruling 98/9: Income tax: deductibility of self-education expenses incurred by an employee or a person in business states at paragraph 48:

The decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 establishes the principle that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to get employment or to obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

In your case, you had to agree to do a training course as a condition of your gaining employment with Company Z. The course would not be eligible for a self-education deduction, even if you had paid for it yourself, as the training occurred at a point too soon. It was a requirement of employment and did not occur in the course of gaining or producing income.

The payment for damages (being repayment of self-education expenses) to your employer is also not related to the earning of assessable income. The payment represents expenditure incurred by you for breaching the terms of your employment contract. Therefore, the expenditure for damages cannot be said to have been incurred as a self-education expense (ATO ID 2002/902).

Accordingly, the damages paid for breach of employment contract in relation to the self-education expense claim is not an allowable deduction under section 8-1 of the ITAA 1997 as it was not incurred in gaining or producing assessable income.