Edited version of private advice

Authorisation Number: 1051988422605

Date of advice: 2 June 2022

Ruling

Subject: Self-education expenses

Question

Can self-education expenses be deductible under section 8-1 of the Income Tax Assessment Act 1997 if it was incurred during the period the individual was made redundant?

Answer

No

This ruling applies for the following period

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were employed during the 20XX financial year.

You were made redundant in 20XX.

From 20XX to 20XX, you were unable to find employment.

While redundant you undertook training.

During the 20XX financial year you were re-employed by the same employer.

Relevant legislative provision

Section 8-1 Income Tax Assessment Act 1997

Reasons for decision

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 the course of gaining or producing the assessable income but are not allowable to the extent that they are of a capital, private or domestic nature.

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 training 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 (refer to paragraphs 48 to 52 of TR 98/9). The expenses 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.

At the time you undertook the training you had been made redundant from your employment.

At the time you incurred the fees, they were not related to employment. The expense was incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (Maddalena case). Therefore, the necessary connection between the expense and your income earning activities does not exist and no deduction for this expense is allowable under section 8-1 of the ITAA 1997.