Edited version of private advice

Authorisation Number: 1051851618215

Date of advice: 29 June 2021

Ruling

Subject: Self-education expenses

Question

Are you entitled to claim a deduction for the tuition fees incurred in relation to the Courseunder section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX.

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You commenced undertaking a Masters' course (the Course) on a part-time basis while you were employed by Company A as a Designer and were invoiced for several of the modules of the Course prior to the beginning of the ruling period.

The Course is described as being aimed at executive level people to increase their salaries, designed to accelerate the participant's career and to advance them into a more senior role, and/or to help them to develop their own business.

You are paying for the course under the FEE-HELP program and are not being reimbursed for the module fees.

The Course is offered on a face-to-face basis on campus outside of business hours.

You completed several modules of the Course prior to ceasing your employment with Company A.

You commenced employment with Company X after a short period in the role of Designer, receiving income totalling $XX,XXX in the first income year of your employment, plus superannuation.

The position description for the Designer position at Company X includes:

•         Responsibilities involve:

-        development of products and parts, using specific equipment to develop parts

-        preparing drawings

-        completing projects

-        liaising with company employees in relation to completing building, designing and development of products

-        supplying data to Company X customers

-        maintaining and keeping drawing register and file register.

•         Pre-requisites include an understanding of specified equipment, procedures, protocols, and skills and processes to manufacture Company X's products

•         Supervises - Nil.

You continued completing the Course after the commencement of your employment with Company X.

You entered a new employment agreement (EA) with Company X several years after you commenced employment with them in which your weekly hours were reduced, but you continued to hold the same position as a designer with the same duties and responsibilities as you had in your former Company X designer position, although the new position had a different title. The new EA outlined that your income per annum was $XXX,XXX, plus superannuation.

You have been invoiced for the modules you have completed in relation to the Course up to this point and will continue to be invoiced for the remaining future modules required to complete the Course during the ruling period.

Your current employer is aware that you are completing the Course and you are permitted to leave the office to enable you to attend lectures and tutorials on certain days of the week, or in busy times during the semester, prior to COVID-19. However, you do not receive any formal study leave or paid allowances in relation to undertaking the Course.

After you have completed the Course you are hoping to obtain a design position which involves designing the end-to-end member experience, providing assistance to determine the needs of the members, and implementing solutions to address them and business opportunities in line with the organisation's strategy.

Assumptions:

For the purposes of this ruling, during the period covered by this ruling:

•         you will complete the Course

•         you will pay the tuition fees for the modules arising in relation to the Course as they are incurred during the current and future income years; and

•         you will remain in the same employment position with Company X.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Deductions for self-education expenses

Work-related expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This section allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are of a capital, private or domestic nature.

The types of expenses related to self-education which are considered to be allowable under section 8-1 of the ITAA 1997 include:

•         course or tuition fees of attending an educational institution (including student union fees, but excluding Higher Education Loan Program (HELP) payments)

•         the cost of textbooks

•         airfares, accommodation and meal expenses incurred on a study tour.

The Commissioner's view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses. In accordance with TR 98/9, which outlines that expenses of self-education will satisfy the requirements of section 8-1 of ITAA 1997 as follows:

•         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 (FC of T v Finn (1961) 12 ATD 348; (1961) 106 CLR 60; FC of T v Studdert 91 ATC 5006).

•         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 ( FC of T v Hatchett 71 ATC 4184; FC of T v Smith 78 ATC 4157; FC of T v Lacelles-Smith 78 ATC 4162).

•         Expenses related to improving knowledge or skills are not of a capital nature (FC of T v Finn (1961) 12 ATD 348; (1961) 106 CLR 60; FC of T v Hatchett 71 ATC 4184).

•         The fact that a 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 ( FC of T v Maddalena 71 ATC 4161; FC of T v MI Roberts 92 ATC 4787; FC of T v Kropp 76 ATC 4406).

The intention or purpose in incurring the expense may be an element in determining whether the expense is allowable (Fletcher v Ors 91 ATC 4950).

Therefore, provided there is sufficient connection between a course of self-education and current income earning activities, you are entitled to claim a deduction for your self-education expenses.

In court decisions such as Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478 at 497-498; (1958) 11 ATD 404 at 412, the High Court of Australia has indicated that the expenditure must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense. There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income (Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; (1949) 8 ATD 431 at 435).

However, self-education expenses will not be deductible if the study is intended to:

•         enable you to get employment,

•         enable you to obtain new employment, or

•         to open up a new income-earning activity (whether in business or in your current employment).

Paragraph 48 of TR 98/9 refers to the decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena's Case). That case established 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. The expenses would be incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

Paragraph 42 of TR 98/9 states that 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.

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.

Application to your circumstances

You commenced the Course while employed by your former employer, Company A, and expenses incurred in relation to the modules of the Course during your employment with Company A are not being considered in this ruling.

You commenced your employment as a Designer with Company X during the ruling period and have incurred expenses in relation to modules of the Course during your employment with Company X in past and present income years, and will incur expenses in relation to future modules you will complete during future income years included in the ruling period.

It is stated in the ruling that:

•         The purpose of undertaking the Course is to provide you with an increase in salary and improve opportunities for more senior positions within the organisation. So far, the program has developed your skills and increased the budgeted worth of the projects you manage as part your current role.

•         You are undertaking the Course to increase leadership opportunities within your current organisation. The Course forms part of the backbone of your career advancement strategy and facilitates the honing of your existing skills through exposure to targeted real-life industry projects and networks. The Course also plugs gaps in your knowledge base to fulfil your daily duties, such as budgeting, large scale project quoting, analysing risk and engaging in binding financial partnerships.

•         Your current role with Company X is to manage a project from initial pitch presentation with prospective clients, all the way through to delivery and review, whilst building and maintaining strong business relationships. You represent Company X and have the responsibility to submit large project value costings, project budgeting and set Gross profit margins in accordance with company practice to ensure performance indicators are met. Financial Management and Accounting knowledge fundamentals are crucial in the presentation of these business-critical documents. Managing technology and Innovation strategies has been a focus of Company X during the difficult COVID period of 20XX. The experience gained through the Course regarding business research and creating innovation strategy documents has confidently allowed you a different lens to view the organisation through and reveal possible opportunities that may not have been identified otherwise to maintain revenue through diversification projects.

•         Your role is the most senior design staff within the organisation. All design staff, ranging between X-XX, reported to you and you oversaw administrative duties and design review, quality control and pitch meetings. You participated in weekly management meetings chaired by the persons holding Company X management positions, with these meetings involving financial year forecasting, margin analysis, strategic and personnel discussions which were highly confidential. Fundamental to your understanding around the running of the business were the initial two foundational subjects of the Course you undertook, which were vital in refreshing your foundational knowledge base and improving your contribution to the strategic decision making in the area you had responsibility for, being the design studio.

•         Several modules of the Course allowed you to negotiate a higher salary at the time of signing onto Company X as your role would be supporting the soon-to-be general manager and would sit outside the traditional realm of what other designers had done in the past. Moving forward with future salary negations, as your role merges more into the strategic sales and marketing focus your next review you will be seeking an additional $XX,XXX per annum as a result of the innovation strategy and business research initiatives you have undertaken as part of the Course.

We have considered the following when making our decision on whether you are entitled to claim a deduction for the costs of the modules incurred during the ruling period in relation completing the Course, as provided above.

The Course is designed to aid executives to increase their salaries, advance the participant into a more senior role, accelerate their career and/or to help the participant to develop their own business venture. The Course is aimed at persons who are seeking management positions, such as higher management levels of an executive level, which from the information provided is not a requirement of the position you currently hold with Company X, which is not a management/executive level position.

While the learning outcomes, skills and competencies that some of the modules impart and develop may have been applied in your current work activities, based on the information you provided about your work activities it is not viewed that the necessary connection between the modules in the Course and your current work activities exist. They are considered only very generally related to your activities and the knowledge and skills imparted by these subjects goes well beyond the requirements of your current income earning activities in your current role as a Designer with Company X, being aimed at persons holding a much higher position.

It is stated that you attend meetings in your role with Company X. However, while you may attend meetings, nothing has been provided to support that you are a decision maker in relation to Company X's operations at an executive/management level for the company or in any way are in a position that would/could influence and/or affect decisions being made in relation to the company operations and/or its activities.

You have indicated that you are undertaking the Course to increase leadership opportunities within Company X and that completing the Course is part of your career advancement strategy. Additionally, you have indicated that at the end of the Course you would be seeking employment of a different nature to the position that you currently hold with Company X. This supports that you are using the Course to enable you to obtain new employment and/or to open up a new income-earning activity in a higher/different position with either Company X and/or another employer.

While you may receive a pay increase from Company X, which could be due to your period of service, no evidence has been provided to support that you will/may receive any pay rise in relation to your employment with Company X as a result of completing the modules in the Course. Additionally, nothing has been provided to support that the completion of the Course is a requirement of your employment with Company X, or that your position and/or income with them would be affected by you either finishing or not finishing the Course. The completion of the Course appears to not be a relevant incident, or part of your employment with Company X. Therefore, it appears that regardless of whether you complete the Course of not your employment with Company X in your current position will not be affected.

After reviewing all of the information and documentation provided, and objectively considering the principles contained in TR 98/9 and cases to the facts of your situation, it is viewed that:

•         No evidence has been provided to support that the Course was a requirement of your current position, or that either completing or not completing the Course would impact your current position

•         No evidence has been provided to support that the Course would result in you receiving any pay rise in relation to your current position; and

•         Based on the description of the Course and your statements for why you are completing the Course, it is to open up a new field of employment either with Company X and/or another employer, and/or to enable you to gain a different/higher position with Company X.

It is viewed that it has not been supported that the expenses incurred in relation to the Course have sufficient connection with your current income earning activities in relation to your current employment with Company X. Therefore, you are not entitled to claim a deduction for the tuition fees you will incur in relation to completing the Course during the period covered by this ruling.