Edited version of private advice

Authorisation Number: 1051918542721

Date of advice: 22 November 2021

Ruling

Subject: Self-education expenses

Question 1

Are all the Taxpayer's self-education expenses incurred in studying Master of Business Administration allowable deductions under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are part of the Taxpayer's self-education expenses, detailed in Group B, incurred in studying Master of Business Administration allowable deductions under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This private ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 January 20XX

Relevant facts and circumstances

Taxpayer has been employed with the Employer since XX/XX/XXXX.

The Taxpayer has held several roles within the Employer.

The Statement of Duties for the various roles were provided.

The Taxpayer commenced a Master of Business Administration (Course) in XX/XX/XXXX. The Course was completed in XX/XX/XXXX.

The Course encompasses 12 different subjects that were completed over multiple years. Course fees were incurred for each subject at multiple points in time.

The taxpayer provided details of the individual subjects and the employment held at the time the fees were incurred.

The Taxpayer provided a link to Course provider's website for the subjects outline and an explanation was provided of how each subject is connected to the Taxpayer's income earning activities.

The information has separated into two groups, Group A and Group B

Taxpayer advised the completion of the Course was to help in obtaining new roles.

Taxpayer advised since the completion of the Course their application was accepted which has resulted in a pay increase. Taxpayer did not provide evidence to confirm this.

A letter from the Employer was provided.

The Course tuition fees were paid for under the FEE-HELP program.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 26-20

Income Tax Assessment Act 1936 section 82A

Reasons for decision

Section 8-1 of the ITAA 1997allows 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 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (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 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).

The deductibility of self-education expenses was also considered by the High Court in FCT v Maddalena 71 ATC 4161; (1971) 2 ATR 541. The High Court held that self-education expenses incurred to obtain new employment or to open up a new income-producing activity do not have a sufficient relationship with a taxpayer's current income-producing activities. They relate to future streams of income, rather than present streams of income, and so are incurred at a point too soon.

In other significant 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).

Paragraph 42 of TR 98/9 states:

42. 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. In Case Z42 92 ATC 381; AAT Case 8419 (1992) 24 ATR 1183, a senior newspaper journalist, whose duties involved interviewing people for feature articles and making presentations to potential advertisers, was allowed a deduction for the cost of a speech course because it was incurred in maintaining or increasing his ability in his current employment and therefore was necessarily incurred in carrying on that employment.

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.

Paragraph 14 of TR 98/9 states:

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, the self-education expenses are allowable as a deduction.

In case FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557, Menzies J held that expenses incurred by a primary school teacher in relation to the submission of theses to gain a Teacher's Higher Certificate were allowable. His Honour considered that the certificate expenses were related to the actual gaining of income because possession of the certificate entitled Mr Hatchett to move to another pay scale and, therefore, to earn more money in the future. It also entitled him to be paid more for doing the same work without any change in grade (125 CLR at 498; 71 ATC at 4186; 2 ATR at 559).

Furthermore, in case FC of T v. Studdert, Hill J said that an expense normally is allowable if it can be shown to contribute or be likely to contribute to increased income, but noted that such a finding is not a prerequisite for deductibility (91 ATC at 5013-5014; 22 ATR at 770).

Application to the Taxpayer's situation

In determining whether a deduction is allowable for self-education expenses we have to examine the entire course as a whole in terms of the connection between the Course and the Taxpayer's income earning activities over the period the expenses were incurred. If the course as a whole is considered to be relevant and incidental to the income earning activities, then the entire course would be deductible.

The Taxpayer has been employed with the Employer since XXXX to present and has been employed in various roles over this time. The Course fees were incurred at multiple points in time over approximately 6 years. Consideration needs to be given to the connection to the employment activities at the time the subjects were studied and the fees incurred.

When the Course commenced, the Taxpayer was employed in Role A. The work duties focused on working as part of a team in a specific Department to provide service clients. Duties also involved staff supervision and training.

Whilst employed in this role, the Taxpayer completed 7 Course subjects. After analysing each subject outline against the role and considering the Taxpayer's explanation of how the subjects maintained or improved a skill specific to the work activities, we have concluded the Leadership subject has the relevant connection to the income earning activities.

The remaining subjects are considered either too general in nature or undertaken at a point too soon to enable the Taxpayer to get a new role. We acknowledge there may be some minor connection, but the specific knowledge gained from some subjects are unrelated to the Taxpayer's work duties.

The Taxpayer re-enrolled and completed 2 of the earlier subjects, Financial Management and Strategic Management whilst employed in Role B. The Taxpayer did not explain how the subjects maintained or improved a skill specific to the work activities of the role and it is considered these subjects only related in a general way to the role.

In the Taxpayer's current Role C, duties include coordinate a compounding service to inpatients and outpatients, provide supervision and leadership to staff, coordinate dispensing and medication supply practices and ensure they comply with legal requirements, ethics, and policies, develop procedures and strategic management and planning for the team.

Whilst employed in this role the Taxpayer completed 5 different subjects. Based on an analysis for the subjects against the Taxpayer's explanation, we are satisfied Organisational Learning and Development and the Project subjects have the necessary connection to the Taxpayer's role.

Generally, taxpayer's can claim a deduction for study and self-education expenses if the course directly relates to their current work activities and results in or is likely to result in an increase in income from their current work activities. For example, being granted a higher pay scale for doing the same work activities without changing grade or responsibilities.

In this case, the Taxpayer has advised their Role with qualifications application was subsequently accepted which has resulted in a pay increase. However, the Taxpayer did not objectively show that this has occurred as a result of undertaking the Course.

Conclusion

Subjects outlined in Group B have the necessary connection to your assessable income earning activities and are considered allowable deductions under section 8-1 of the ITAA 1997.

The subjects outlined in Group A do not have the necessary connection with the Taxpayer's income earning activities. They are considered only very generally related to the work activities. They were also undertaken at a point too soon to enable the Taxpayer to obtain new income streams, albeit with the same employer. Therefore, the subjects listed in Group A are not allowable deductions under section 8-1 of the ITAA 1997.