Edited version of private advice

Authorisation Number: 1051863745290

Date of advice: 14 July 2021

Ruling

Subject: Self-education expenses

Question

Are you allowed a deduction for the self-education expenses incurred for your overseas study?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were admitted into a program at an overseas educational institution.

When you accepted the position you were intending to travel overseas for the duration of the course.

The total tuition fees were payable in three instalments.

The first payment secured your position and was a non-refundable payment.

You decided to undertake the course in order to increase your technical skills and sharpen your soft skills (communication skills, client management skills) to serve your clients better.

Your employer didn't provide the option for you to continue your employment while you undertook the course, so your employment ceased before you began the course.

You were not offered paid leave, allowances or rewards to undertake the course.

Following completion of the course you received a job with a different employer.

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 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.

The deductibility of self-education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable income.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 56 ALR 785; (1949) 8 ATD 431 the High Court stated that:

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

However, no deduction is allowable for self-education expenses if the study is to 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). The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 (Maddalena's case)).

In FC of T v. M I Roberts 92 ATC 4787; (1992) 24 ATR 479 Mr Roberts was employed in Australia as a mine manager. After applying on a number of occasions for admission to various overseas MBA programs, he accepted a place at an American university to study full-time for an MBA. Shortly thereafter he was retrenched, with his consent, from his mine manager position and travelled to the US to undertake the MBA. On his return to Australia, he was re-employed as a mine manager by another company at a significantly increased salary when compared with his previous position. However, the Federal Court disallowed a deduction for his expenses associated with the course. The expenses were considered to be incurred at a point too soon to be incurred in earning income from his future employment.

In your case, you accepted your position in the course with the intention to be overseas for the duration of the course and you had to cease your employment. As you were intending to be unemployed when you attended the course, your expenses were not incurred in the course of producing your assessable income. Additionally, the expenses were incurred at a point too soon to be regarded as incurred in gaining or producing your current employment. Therefore, the expenses are not deductible under section 8-1 of the ITAA 1997.