Edited version of private advice

Authorisation Number: 1052032305385

Date of advice: 15 September 2022

Ruling

Subject: Self-education expenses

Question

Are you entitled to a deduction for the self-education expenses you incur in undertaking aBachelor of Laws?

Answer

No.

This ruling applies for the following periods:

The income year ended 30 June 20XX to the income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are employed on a full time, ongoing basis with your employer (your employment).

You provided a statement of your employment duties.

You provided the job statement related to your employment, which lists the topics you are expected to have a knowledge and understanding of.

You are undertaking a Bachelor of Laws (the course).

You provided an explanation of how some of the units within the course are relevant to your employment.

You are paying for the course using FEE-HELP.

You are not receiving any government allowance to study (including Abstudy, Austudy or Youth Allowance).

You are not receiving a taxable bonded scholarship.

Your employer does not require you to complete the course, however they have been highly supportive and have strongly encouraged you to continue with the course by being flexible with your working hours.

Your employer has been unable to provide you with financial assistance due to budget constraints.

Your self-education expenses include the cost of subject fees, textbooks, stationery and expenses related to your laptop.

You contend that the legal knowledge gained from the course has been useful in your current role.

Upon the completion of the course, you would like to pursue a different role with your employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent 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, or a provision of the ITAA 1997 prevents the deduction.

Various decisions of the courts have determined that to show that an outgoing is incidental and relevant to the gaining of assessable income and the expenditure is not capital, private or domestic in nature, there must be a nexus or connection between the outgoing and the assessable income. To determine whether your self-education expenses are deductible, it is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

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).

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 designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayer's current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (Federal Commissioner of Taxation v Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161, TR 98/9 paragraph 15).

In Case R60 84 ATC 447 the Board of Review disallowed self-education expenses. The taxpayer was a public servant and their position required relevant experience or some legal training (which the taxpayer already had) but not legal qualifications as such. In the circumstances, the continuation of the taxpayer's legal studies could not be characterised as a relevant incident of or as part and parcel of his employment. While the legal studies were specified as an advantage for the position held by the taxpayer and the taxpayer's legal training was relied on by the branch he was in, if the studies were discontinued, the branch would not have reacted at all. The branch head saw the encouragement given to the taxpayer as part and parcel of normal staff development.

In your circumstances, even though the course may broaden your knowledge and make you a better employee and better able to carry out your employment duties, as with the case quoted above, the courts have held that this is not sufficient to enable expenditure to be allowed as a deduction.

You have also expressed that upon completing your course, you intend to pursue a new position with your employer. To the extent that you have undertaken the course to enable you to obtain this new position, the self-education expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

As such, the self-education expenses you incur in undertaking the course are not incurred in earning your assessable income and therefore you are not entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.