Edited version of private advice

Authorisation Number: 1051898252086

Date of advice: 23 September 2021

Ruling

Subject: Self-education expenses

Question 1

Are you entitled to a deduction for self-education expenses you incurred in undertaking a educational course?

Answer

No.

Question 2

Are you entitled to a partial deduction for computer and internet costs related to completing an educational course?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2021

Year ended 30 June 2022

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You are a citizen of Australia and resident for taxation purposes.

You began your current employment in the middle of the year.

Your previous employment finished in the previous year.

You were unemployed from the time you finished your previous employment until you began your new job approximately over a year later.

You began a course of study several months before you began your current employment.

You paid for the course in the same month you started the course of study.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Course fees

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.

Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayers 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; (1961) 8 AITR 406).

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.

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 open up a new income earning activity (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged.

Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, & 48 62 of TR 98/9 (Maddalena)).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.

You have incurred expenses in relation to an Advanced PG Diploma in Regulatory Affairs & Medical Writing. For these expenses to be allowable they must have a connection with your income earning activities at the time the expenses were incurred.

The Federal Court in FC of T v. M I Roberts 92 ATC 4787; (1992) 24 ATR 479 (Roberts case) applied the principle in Maddalena when it overturned an Administrative Appeals Tribunal (AAT) decision allowing a mine manager a deduction for expenses associated with a Master of Business Administration degree. Mr Roberts was a qualified mining engineer who became a mine manager. He accepted a place at an American University to study full-time for an MBA and shortly thereafter he was retrenched, with his consent, by his employer. Before completing his studies Mr Roberts accepted an offer of employment from another mining company and, after graduating, started work as a mine manager at a significantly higher salary than he previously earned.

Mr Roberts claimed deductions for self-education expenses while studying in the United States. The Commissioner disallowed the deductions and the taxpayer objected. The AAT held that there was a sufficient connection between the self-education expenses and Mr Roberts assessable income. The Commissioner appealed to the Federal Court, submitting that the expenses were not deductible for the following reasons:

1.    the taxpayer was not in employment at the time the expenses were incurred and, accordingly, there was insufficient connection between the expenses and the gaining or producing of assessable income

2.    they were prerequisite to the gaining of assessable income, and

3.    they were private in nature.

In overturning the AAT decision, Cooper J considered that the expenses were incurred for the purpose of obtaining new employment, albeit in a better position and at a higher salary, rather than in the course of earning the salary payable in the employment. Accordingly, the expenses were not deductible.

Your case is similar to Roberts case cited above in that at the time you incurred the cost of the course you were not employed. Therefore, at the time, your studies were not undertaken to maintain or improve an existing skill or knowledge used in your current income earning activities. Nor can it be said that the subject of your studies objectively led to, or was likely to lead to, a future increase in your income from your current income-earning activities.

Therefore, you are not entitled to a deduction for the course fees under section 8-1 of the ITAA 97 for self-education expenses as they did not have the required nexus to employment at the time the fees were incurred.

Computer and internet expenses

PS LA 2001/6 states that usage of internet and electronic devices in relation to a course of self-education may be deductible where a nexus can be established between the internet and electronic device usage expenses and the income earning activity. However, any personal usage (as well as by other occupants) must be considered when determining the work-related percentage. The Practice Statement states the two primary measures that can impact on work component percentage include:

• the time spent by the taxpayer using the internet or electronic devices for work purposes compared to time spent by all occupants using the internet for private purposes (time basis) and
• data used for work purposes compared to data used for private purposes of all occupants (data basis)

Where itemised internet accounts are not available, a reasonable estimate of work-related internet expenses, based on diary entries of usage over a period of one month, together with relevant paid internet accounts, will be acceptable for substantiation purposes.

Accordingly, your reasonable study related internet and electronic devices expenses will be deductible to the extent that these expenses relate to study or other work-related activities.