Edited version of private advice

Authorisation Number: 1051968866630

Date of advice: 1 April 2022

Ruling

Subject: Self education expenses

Question

Are the course fees incurred for the listed units undertaken for your Masters course a deductible expense?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a qualified civil engineer.

You hold a builder's license in Australia.

You are the principal/director of a professional consultancy business (company A).

Your professional areas of expertise include civil works design and construction, project management, property development, and property investment.

You were engaged, through Company A, by Company B to provide commercial management services for a development.

You commenced a Masters course a few months after your contract with company B began, at a recognised educational institution in Australia with a view to gain a more advanced level of understanding in your current area of skill and knowledge.

The scope of your 'Contractor services' are listed in the contract.

Your Masters course is described to equip the analytical and decision-making skills necessary for adaptable careers in the changing and dynamic property investment, development and valuation industry.

You have provided information showing the learning outcomes and the link between each course of study undertaken so far and your role and responsibilities in your contracted services.

Over one year after the start of your contract, you entered a verbal agreement between yourself and Company B for your role to include additional responsibilities, which has contributed to increased renumeration.

You have provided invoices showing the following items and amounts from before and after your additional responsibilities began.

The course so far has assisted you in all aspects of the work activities undertaken at Company B.

As each unit was completed, your area of work was enhanced which led to further responsibilities. These additional responsibilities were a direct result of your enhanced knowledge acquired through the completion of the course units.

Relevant legislative provisions

Income Tax Assessment Act section 8

Reasons for decision

Self-education expenses are deductible under section 8-1 of the Income Tax Assessment Act 1997 where they are incurred in gaining or producing your assessable income. 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 (Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478 at 497-498; (1958) 11 ATD 404 at 412). 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).

Therefore, if your income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of your educational course enables you to maintain or improve that skill or knowledge, the expense is an allowable deduction.

The expense will also be deductible if the study of a subject of self-education objectively leads to, or is likely to lead to, an increase in your income from your current income earning activities in the future.

If the study enables you to gain employment, obtain new employment or open up a new income earning activity (in business or in your current employment), the expense is considered to be incurred a point too soon and is not deductible.

In your case, you were working to provide commercial management services for Company B.

The areas of study undertaken in the Masters course covers specific skills and knowledge relevant to your responsibilities in your role under the contract. These areas of study directly relate to your responsibilities in your role as director of Company A. The areas of study help maintain your skill set for which you were contracted by Company B, and enhanced your role to include development management responsibilities which increased your remuneration.

Your invoices provided show that after your responsibilities increased and you became a 'Development Manager' your remuneration increased. You continued to receive the same month under your existing agreement, and an additional amount (varying each month) for development management services. This shows that the role you were originally contracted for did not cease, but that you adopted additional responsibilities on top of that role thereby reserving the link between your study maintaining or improving your specific knowledge or skillset that you were originally contracted for.

Therefore, expenses incurred undertaking the units of study in your Masters course so far are a deductible expense as they enable you to maintain or improve that skill or knowledge that is exercised in your income earning activity under the contract between Company A and Company B.

If you undertake units in your Masters that are unrelated to your current role in the future, they may not be deductible. Similarly, if your role changes significantly or you receive a promotion that means your role is unrelated to your course of study, the units undertaken may not be deductible.