Edited version of private advice

Authorisation Number: 1051748962897

Date of advice: 23 September 2020

Ruling

Subject: Self-education expense

Question

Is the study and related costs of a course of education deductible as a self-education expense?

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 are currently employed full time as a client manager.

You have been employed since late 20XY.

Your position is primarily a customer service role.

You do not provide financial advice in the course of your duties.

You began a course of education in mid 20XX.

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.

A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997:

·         it must have the essential character of an outgoing incurred in gaining assessable income or, in other words of an income-producing expense (Lunney v FC of T (1958) 100 CLR 478);

·         there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v FC of T (1949) 78 CLR 47)

·         it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 95 CLR 344; FC of T v Hatchett 71 ATC 4184 (Hatchett's case).

Taxation Ruling TR 98/9: income tax: deductibility of self-education expenses 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.

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 no deduction is allowable for self-education expenses incurred where the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment, they 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.

Paragraph 42 of TR 98/9 states:

If a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self-education expense and the income earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances.

Further paragraph 34 of TR 98/9 states:

Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344 at 349-350; (1956) 11 ATD 147 at 148; (1956) 6 AITR 379 at 384; FC of T v. Cooper 91 ATC 4396 at 4403; (1991) 21 ATR 1616 at 1624; Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508 at 4521; (1993) 26 ATR 76 at 91). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

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, you are studying a course of education and you are employed as client manager who deals with a selection of clients that are allocated to you via an internal process or by your superior.

Your current role is primarily customer service whereby you contact clients and provide general advice about the foreign exchange products offered by your employer.

You do not provide advice about financial markets or make recommendations as to the merit of the products offered by your employer.

Whilst it is acknowledged that undertaking this course may possibly provide some benefit to you in your general employment, your main income earning activity is not in the area of analytics, finance or business management, which is the focus of the course.

The course of study is too general in terms of your current income earning activities and there is only a rudimentary application of the skills provided by the course to minimal elements of your current role.

It follows that in your situation, it is considered that there is an insufficient connection between the course of study, which concentrates on the in-depth understanding of analytics, finance or business management, and the activities performed in your current employment in customer service.

It is the Commissioner's view that this course of study will provide you with the opportunity for greater remuneration in a new income earning activity or new employment after completing the studies. This is the case even if the new employment is with your current employer. Therefore, no deduction can be claimed for self-education expenses as the tests outlined in section 8-1 of the ITAA 1997 have not been satisfied.