Edited version of private advice

Authorisation Number: 1051783604443

Date of advice: 04 March 2021

Ruling

Subject: Whether you are entitled to a deduction for the cost of your qualification

Question

Are you entitled to a deduction for the cost of your licence endorsement?

Answer

No.

This ruling applies for the following period:

1 July 2019 to 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You were offered and accepted the position as a pilot in late 2019.

Your training commenced in early 2020.

You qualified for your endorsement a few weeks later.

Your contract to commence your employment duties began after you qualified.

Your qualification did lead to an increase in your salary.

Your qualification is not required as part of your employment.

Relevant legislative provisions

Income Tax Assessment Act, 1997 section 8-1

Reasons for decision

Question

Are you entitled to a deduction for the cost of your Instrument Rating (IR) endorsement?

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in order for an expense to be deductible, there must be a connection between the expense and the gaining or production of assessable income. However, you cannot deduct a loss or outgoing that is of a capital or capital nature.

Taxation Ruling TR 98/9 (TR 98/9) discusses the circumstances under which self-education expenses are allowable as a deduction.

Paragraph 13 of TR 98/9 states that a deduction is allowable for self-education expenses if the 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.

Paragraph 14 of TR 98/9 states that a deduction is allowable for self-education expenses if the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer's income from current income-earning activities.

In both Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60 (1961) 12 ATD 348, (Finn) and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494 71 ATC 4184 (1971) 2 ATR 557 (Hatchett) it was made clear that expenses related to improving knowledge or skills are not of a capital nature and therefore allowable as a deduction.

However, paragraph 15 of TR 98/9 states 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. (see Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161 (Maddalena); and paragraphs 15, & 48 62 of TR 98/9).

Taxation Ruling TR 95/19 (TR 95/19) describes the type of work-related deductions for airline industry employees, which also includes pilots and other flight crew.

Paragraph 23 of TR 95/19 discusses the most common types of expenses that are/are not deductible for airline industry employees. In this paragraph, under Licences, a deduction is allowable for the cost of renewing licences held by an airline employee in respect of his or her employment. A deduction is not allowable for the cost of obtaining the initial licence.

Application to your circumstances

We agree that there is a connection between the cost of the training and your occupation. We also accept that the training will further enhance your skills and knowledge.

However, as your qualification is not required in your job, and that the expenditure you incurred is attributable to the attainment of the initial qualification which is a new qualification for you, and that your training was completed prior to you commencing your actual duties, the training expense has been incurred at a point too soon meaning that all expenses incurred by you are not deductible under section 8-1 of the ITAA 1997.