Edited version of private advice

Authorisation Number: 1052052505225

Date of advice: 24 November 2022

Ruling

Subject: Work related expenses - self-education

Question

Are you entitled to a deduction for self-education expenses you incur to gain a private pilot's licence?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

27 March 20XX

Relevant facts and circumstances

You are employed by a University as a Research Fellow.

Your employment contract is for you to undertake research only duties.

Your work involves travel to remote communities.

Having a private pilot's licence will allow you to access remote communities in the wet season when those communities are only accessible by plane.

You commenced training towards a private pilot's licence in 20XX and expect to complete the qualification in 20XX. So far you have obtained a Recreational Pilot Certificate with passenger and cross-country/navigation endorsements.

Your employer does not reimburse you for your flight training, but they have allowed you to undertake training during office hours.

Your employer has allowed you to use research funds to fly yourself for work purposes.

You have written grant applications in which you specifically mention your pilot's licence as a skill.

You believe that having a private pilot's licence will set you apart from others in your field and increase your ability to attract future grant funding.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

There is insufficient nexus between the expenses you incur in gaining a private pilot's licence and your current income-earning activities to make them deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). It is not a requirement of your current role as a Research Fellow for you to hold a private pilot's licence, nor would a private pilot's licence objectively lead to, or be likely to lead to, an increase in your income in this position.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing your assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997:

•         the expense must have the essential character of being an outgoing incurred in gaining assessable income or of an income producing expense (Lunney v Federal Commissioner of Taxation [1958] HCA 5);

•         there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL & Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15); and

•         it is necessary to determine whether there is the requisite connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces their assessable income (Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation [1956] HCA 77; Federal Commissioner of Taxation v Hatchett [1971] HCA 47; Federal Commissioner of Taxation v Cooper [1991] FCA 164 (Cooper's Case).

The requisite connection is not shown by demonstrating only that there is some causal connection between the expenditure and derivation of the income, nor by demonstrating that the expenditure was incurred 'in connection with' the derivation of assessable income or 'for the purpose of deriving assessable income. What must be shown is closer and more immediate connection. The expenditure must be incurred 'in the course of' gaining or producing the assessable income. In Cooper's Case, Lockhart J stated:

'The question whether additional expenditure of the taxpayer is deductible under s51(1) cannot be answered simply by a process of reasoning that, because expenditure of this type is a prerequisite to the earning of the taxpayer's assessable income (in the sense that it is necessary if assessable income is to be derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the assessable 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.

Paragraphs 13 and 14 of TR 98/9 provide that self-education expenses will satisfy the requirements of section 8-1 of the ITAA 1997 if:

•         A taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge; or

•         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 their current income-earning activities in the future.

In your case, you are employed as a Research Fellow. Your duties include research only duties and the project for which you have been employed has a specified amount of funding available. You are not required to hold a pilot's licence as a condition of your employment, rather it would be convenient and may benefit your employer by providing additional capability for you to travel to remote communities at times when those communities are inaccessible by road. The benefits of you having a pilot's licence are largely personal and private in nature.

Accordingly, all expenses incurred are considered to be more related to development of personal capacity which is considered to be private in nature. The course does not have sufficient direct nexus to your income earning activities and the expenses incurred are therefore not tax deductible.