Edited version of private advice

Authorisation Number: 1051801035197

Date of advice: 15 February 2021

Ruling

Subject: Self-education expenses

Question

Can I claim work-related self-education expense deductions for fees incurred in relation to undertaking a business coaching/mentoring program?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are undertaking business coaching/mentoring sessions (Mentoring Program).

You provided a Receipt dated XX/XX/XXXX for an amount of $X,XXX. The fee covers 12, 1 Hour mentoring sessions at $XXX per session.

The Mentoring Program commenced on XX/XX/XXXX and you aim to complete the sessions by XX/XX/XXXX.

You provided a link to the webpage for the Mentoring Program. The webpage covers information about the Mentoring Program.

You outlined further information provided by the Mentor about the Mentoring Program.

You will not gain qualifications from undertaking the Mentoring Program.

You are employed on a permanent full-time basis as a Project Officer - Food Safety Auditor.

A role description was provided.

Your employer does not support you or encourage you to undertake the Mentoring Program.

You did not receive an allowance or reimbursement for the Mentoring Program fees.

You were assigned acting manager duties. You acted in the position on two occasions prior to commencement of the Mentoring Program.

You assisted in the state control centre in a Forward Commander (Health) role at City A Airport during the COVID-19 response. You attended a training session for the role on XX/XX/XXXX. Your shifts and on call commenced from XX/XX/XXXX. You provided a Health Rapid Response Plan which includes the roles responsibilities. No details were provided about dates and time of your shifts.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings 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 TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses the circumstances under which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. 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.

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.

Paragraph 43 of TR 98/9 provides an example:

Brianna, a company director, was having difficulty coping with work due to stress brought about by difficulties with her family situation. She decided to attend a four-week course in stress management to help her deal with the situation. Brianna attended the course after hours and paid for it herself.

The cost of the course is not allowable because the course was not designed to maintain or increase the skill or specific knowledge required in her current position. The expenses are more correctly characterised as related to a private matter.

The self-improvement or personal development field is broad and covers activities that develop a person's capabilities and potential, facilitate employability, enhance quality of life and contribute to the realisation of goals. The Mentoring Program is considered a personal self-development program. It is tailored to your individual needs and includes activities such as improving self-awareness, improving interpersonal and communication skills, developing strengths and improving health by relieving stress.

The Mentoring Program fees would only be fully deductible if there is a direct link between the activities covered at each mentoring session to the skills and specific knowledge exercised in your current work activities. Personal matters covered at each session would not be tax deductible.

In order for us to determine whether circumstances exist which would support the deduction for the Mentoring Program fees we must look to the 'essential character' of the expenditure. It is necessary to determine whether there is a sufficient nexus between the expenditure and your income-earning activities.

In Case U101 87 ATC 616 (Case U101) and Naglost v. FC of T (2001) 2002 ATC 2008; (2001) 49 ATR 1028 (Naglost), the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses.

Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently. The aim of the course was to assist those who felt in need of motivation and purpose in life and to improve self-esteem. The AAT denied the claim and held that there was not sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment. It could not be said that the studies were part and parcel of the employment, or that they were incurred in the process of carrying out duties as an employee. Nor could it be seen that they would have a direct effect on the taxpayer's income.

Conversely, in Naglost the AAT allowed a partial deduction to a serving member of the Royal Australian Air Force (RAAF) who undertook a course of study at 'Mastery University'. The taxpayer's duties included management responsibilities and the course of study was designed to enhance leadership, management capabilities and decision-making processes. Further, the course was approved by the taxpayer's employer and some expenses were reimbursed by the RAAF. Testimony from the taxpayer's superior officer stated that the course would enhance the taxpayer's ability to perform at a high level.

The AAT held that the majority of the courses were relevant to the taxpayer's occupation, but that the course segment entitled 'Wealth Mastery' was of a purely personal nature and thus not deductible. The AAT held that the majority of the expenditure was allowable as it was considered to be directly relevant to the applicant's role as a manager. The applicant had direct management responsibility for a group of 20 to 25 people and was responsible for the unit's physical training, plus occupational health and safety. Therefore, expenditure on the majority of the course was considered to be sufficiently relevant to the taxpayer's income producing activities.

Naglost demonstrates that a personal development course will have the 'essential character' of an income-producing expense where a taxpayer can demonstrate a link, not only to skills and knowledge in general, but also to their current duties. Furthermore, the fact that an employer subsidises the study, though not decisive in itself, will lend greater weight to the view that the self-education expenditure has a nexus with income-earning activities.

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.

You are employed as a Food Safety Auditor. It is accepted the program develops and strengthens your interpersonal, communication and relationship skills which enables you to achieve work outcomes. However, based on an analysis of your circumstances, the necessary connection between the Mentoring Program and your current work activities does not exist.

The Mentoring Program is principally directed to the personal self-development of an individual and of their capabilities. The program is personally tailored to individual's issues. There are no pre-set modules or subject areas for each session. We consider the sessions cover a range of skills and attributes, many of which cannot be directly related to your work. The program is open to people from all walks of life, not specifically auditors. Therefore, we consider the program is private in nature.

Unlike the situation in Naglost there is no evidence your employer identified you with skills gap, encouraged you to undertake the Mentoring Program or subsidise the Mentoring Program fees. This adds support to our view that the expenditure does not have nexus with income-earning activities and is a private expense.

Although improving your interpersonal, communication and relationship skills may have a positive impact on your working life, it is not a cost that is sufficiently connected to your assessable income. The program is not designed to maintain or increase the skill or specific knowledge required for you to carry out your current employment. Even though the expenditure had a causal connection with the earning of your income, the activities do not have a close enough nexus to your income earning activities and are too general in terms of your current income earning activities. Therefore, the expenses are not deductible under subsection 8-1 of the ITAA 1997.

Other information

As the Mentoring Program is not provided by an educational institution, the expenses incurred do not meet the definition of 'expenses of self-education' in subsection 82A(2) of the Income Tax Assessment Act 1936. If the expenses were deductible, the expenses would not be limited to the excess of those expenses over $250.