Edited version of private advice

Authorisation Number: 1051941412372

Date of advice: 21 January 2022

Ruling

Subject: Work-related expenses - self-education

Question

Is the taxpayer entitled to self-education expense deductions for the costs incurred in studying a Graduate Diploma of Aviation Management?

Answer

No.

This private ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Taxpayer is employed with the Employer as a Customer Service Officer (Position)

The Taxpayer provided details about the Position.

The Taxpayer provided a list of Duties for the Position.

The Taxpayer provided a copy of a letter to apply for the Graduate Diploma of Aviation Management (Course).

The Taxpayer provided a Postgraduate Letter of Offer.

The Taxpayer provided three subject outlines which include a course summary, course aims and course learning outcomes.

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

The Taxpayer incurred FEE-HELP fee expenses of $X,XXX in the income year ended 30 June 20XX for two subjects.

The Taxpayer provided a notice of finishing a degree.

The Taxpayer did not provide information that the Employer provided support to undertake the Course.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

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:

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

To determine whether circumstances exist which would support self-education deductions, it is necessary to determine whether there is a sufficient connection between the expenditure and the operations by which the Taxpayer more directly gains or produces assessable income as a Customer Service Officer with the Employer. Whether such a connection exists is a question of fact and to be determined by reference to all the facts of the particular case.

The Course is a program of study designed to provide aviation managers and professionals with skills and knowledge to be effective in an aviation environment. It covers operations and corporate management, law and regulation, security, safety and accident prevention. We examined particularly the knowledge and skills imparted from undertaking the three subjects. The subjects are particularly relevant for individuals involved in management and leadership.

Some of the duties performed in the Position include checking customers in, helping customers with specific needs, working on the concourse, boarding flights, dealing with baggage, understanding and using the ticketing system and handling transactions. An examination of the full list of duties indicates the Taxpayer is mainly employed in the 'customer service' field which does not involve managerial, staff or leadership responsibilities.

We accept some of the focus areas of the Course may broaden the Taxpayer's knowledge of the operational side of the aviation industry and management of an airline. We also acknowledge the taxpayer may have a better understanding of aspects of the Position such as in the area of safety. However, those benefits are only incidental to the Taxpayer's work activities. The Taxpayer has not objectively shown there was an increase in income or likely to be an increase income whilst employed in the Position as a result of undertaking the Course.

There is no evidence the Employer supported the Taxpayer in undertaking the Course or the qualification obtained is essential to the Position. The Course provided the Taxpayer with qualifications that are in excess of the requirements of the Position.

We commend the Taxpayer pursuing their interest in aviation and undertaking further study given the detrimental impact COVID-19 has had on the industry. However applying the current law to all the factors, it has been determined the Course relates only in a general way to the Position and a direct connection between the Course and the Position has not been established. Accordingly the expenses are not deductible under section 8-1 of the ITAA 1997.