Edited version of private advice

Authorisation Number: 1052070236012

Date of advice: 20 December 2022

Ruling

Subject: Self-education expenses

Question 1

Are you entitled to claim a deduction for all of the university fees incurred in undertaking a Master of Business and Juris Doctor under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you entitled to claim a deduction for a portion of the university fees incurred in undertaking a Master of Business and Juris Doctor under section 8-1 of the ITAA 1997?

Answer

Yes.

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 as a senior policy advisor with your employer.

You provided a formal statement of your employment responsibilities and the key attributes you are required to demonstrate in your employment.

You are undertaking a Master of Business and Juris Doctor at an educational institution.

You confirmed the units of study you are required to undertake in completing the Master of Business and Juris Doctor are:

Master of Business:

•         Accounting Principles

•         Principles of Economics

•         Fundamentals of Finance

•         Managing People

•         International Human Resource Management

•         Managing Strategic Change

•         Marketing Fundamentals

•         Analysis and Application

Juris Doctor:

•         Legal Foundations A

•         Legal Foundations B

•         Foundations of Private Law

•         Foundations of Public and Criminal Law

•         Contract Law A

•         Tort Law

•         Criminal Law

•         Property Law A

•         Constitutional Law

•         Contract Law B

•         Property Law B

•         Corporate Law

•         Equity

•         Administrative Law

•         Evidence

•         Civil Dispute Resolution

•         Legal Profession

You provided an explanation of your view concerning how the units of study are connected to your current income earning activities.

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

You are not paying for the course fees using the Higher Education Loan Program (HELP).

You are not receiving a taxable bonded scholarship.

You are undertaking the study part time alongside your employment.

Your employer is not funding your study but has encouraged it and allows you to apply for study leave when exams take place.

Further study is encouraged among your peers to maintain up to date and relevant professional knowledge.

On completion of the Master of Business and Juris Doctor, you are hopeful that your improvement in knowledge and skillset will enable you to move into a more senior role, which would involve more leadership responsibilities and require you to deal with highly sensitive and complex work.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1936 section 82A

Reasons for decision

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 assessable income, except where the outgoings are of a capital, private or domestic nature or relate to the earning of exempt income.

Taxation Ruling 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) sets out when an employee can deduct a work expense under section 8-1 of the ITAA 1997. The pivotal element of section 8-1 of the ITAA 1997 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'.

Paragraph 22 of TR 2020/1 provides:

'...the requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income.'

The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that:

'... to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income...'

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR98/9) discusses the circumstances under which self-education expenses are allowable as a deduction.

TR 98/9 provides that self-education expenses are deductible where a taxpayer's income-earning activities are based upon the exercise of a skill or specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge. Self-education expenses are also allowable as a deduction where the study of the subject objectively leads to, or is likely to lead to, an increase in the taxpayers' income from their current income-earning activities in the future.

In contrast, no deduction is allowable for self-education expenses if the study is to enable the taxpayer to get new employment, to obtain new employment, or to open up a new income earning activity (whether that be in business or in the taxpayer's current employment).

Several court cases have established the principles followed in determining the deductibility of self-education expenses.

In FC of T v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348, the High Court held that expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was allowable under section 8-1. All three Judges recognised that the tour expenses were relevant to the activities by which Mr Finn was currently producing income. Kitto J found that the tour was incidental to the proper execution of the duties of Mr Finn's office because:

'Its professional status implied an obligation of progressive acquaintance with a living and developing art. It was, therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add... to his knowledge and understanding of architectural achievements and

trends overseas...'.

Windeyer J was of a similar view, stating that:

'... a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling.' (106 CLR at 70; 12 ATD at 352).

In FC of T v. Studdert 91 ATC 5006; (1991) 22 ATR 762 the taxpayer, a flight engineer, sought a deduction for expenses incurred on light aircraft flying lessons leading to a private pilot's licence. On appeal, Hill J found that the expenses were relevant and incidental to the activities as a flight engineer that directly produced Mr Studdert's income. This finding was based on the facts that undertaking the lessons made Mr Studdert better equipped to perform his skilled job and better proficiency was a motivation for him undertaking the lessons.

Paragraph 42 of TR 98/9 explains that if a course of study is too general in terms of the taxpayer's income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist, meaning that no deduction for self-education expenses would be allowable under section 8-1 of the ITAA 1997. 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 a taxpayer being 'better' at their employment, this does not necessarily mean that the expenditure is deductible. In Case U109, 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 concluded 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.

Application to your circumstances

To determine whether circumstances exist that support your self-education deductions, it is necessary to determine whether there is a sufficient connection between you incurring your university fees and your current income earning activities as a senior policy advisor. Whether such a connection exists is a question of fact and is to be determined by reference to all the facts in your case.

The Juris Doctor qualification is a graduate entry law degree that satisfies the academic requirements for admission to practice as an Australian lawyer. We consider that you are not entitled to a deduction for your all of your self-education expenses incurred in undertaking the Juris Doctor as, due to the nature of the study, it will open up a new field of employment. Instead, we have considered the connection that each individual unit of study within the Juris Doctor has to your current income earning activities.

Applying the current law to your circumstances, you have demonstrated that there is a sufficient connection between the following units of study and your current income earning activities:

•         Accounting Principles

•         Principles of Economics

•         Fundamentals of Finance

•         Managing People

•         International Human Resource Management

•         Managing Strategic Change

•         Marketing Fundamentals

•         Analysis and Application

•         Legal Foundations A

•         Foundations of Public and Criminal Law

•         Contract Law A

•         Constitutional Law

•         Contract Law B

•         Corporate Law

•         Administrative Law

You have not demonstrated that there is not a sufficient connection between the following units of study and your current income earning activities. You are therefore not entitled to a deduction for your self-education expenses to the extent that they relate to the following units:

•         Legal Foundations B

•         Foundations of Private Law

•         Tort Law

•         Criminal Law

•         Property Law A

•         Property Law B

•         Civil Dispute Resolution

•         Legal Profession

•         Equity

•         Evidence

We accept that the units we have found do not have a sufficient connection to your income earning activities

may broaden your knowledge of the principal areas of legal concepts and the wider perspectives of law. Also, that you undertaking these units may lead to you being generally 'better' at your employment. However, we consider that you have not objectively shown that there is a sufficient connection between all units of the Juris Doctor and your current income producing activities. Whilst we accept that a general link can be made, we do not consider that the Juris Doctor, in its entirety, forms an integral part of your core responsibilities as a senior policy advisor.

Other relevant comments

Under section 82A of Income Tax Assessment Act 1936, the amount of self-education expenses allowable as a deduction under section 8-1 of the ITAA 1997 may need to be reduced by up to $250.

For further information, visit the ATO website at ato.gov.au and search for 'QC16918' in the search bar.