Edited version of private advice

Authorisation Number: 1052087902425

Date of advice: 24 February 2023

Ruling

Subject: Self-education expenses

Question

Are you entitled to claim deductions under section 8-1 of the of the Income Tax Assessment Act ITAA 1997 (ITAA 1997) for the expenses you incurred in undertaking your Master of Occupational Therapy?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have been an accredited exercise physiologist with Exercise and Sports Science Australia for a number of years.

You enrolled in and completed a MOT.

You undertook the MOT for the specific purpose of enhancing and complementing your pre-existing activities as an exercise physiologist as opposed to replacing or substituting those activities.

At various times during the period you were studying for your MOT you were employed as an exercise physiologist as well as worked as an exercise physiologist and occupational therapy assistant as an independent contractor.

You incurred expenses in relation to your MOT, including tuition fees, student services amenities fees, text books, stationery, motor vehicle expenses and parking fees.

Exercise and Sport Science Australia, on their website in their Scope of Practice, describes the core activities and roles of an accredited exercise physiologist in the document as follows:

Accredited exercise physiologists are university-qualified allied health professionals who prescribe delivery and adapt movement, physical activity and exercise-based interventions to facilitate and optimise health status, function, recovery, and independence. This helps people participate at home, school, work and in the community

Provide services to people across the full spectrum, healthy through to those at risk of developing a health condition, and people with health conditions, a disability, and aged related illnesses and conditions, including chronic, complex conditions

Apply evidence-based judgement and clinical reasoning to individuals, groups, and the broader community to:

•         Improve and maintain health status and function and support reablement

•         Prevent decline of health status

•         Prevent, treat, and manage health conditions (including diseases, disorders, traumas and injuries), including complex, chronic conditions

•         Screen, assess, and measure capacity and function for activities of daily living and work-related activities, and to inform interventions

•         Prescribe, deliver, adapt, and evaluate movement, physical activity, and exercise-based interventions to:

-       Enhance and maintain function and quality of life

-       Facilitate recovery and promote reablement

-       Maximise independence

•         Educate and advise about health and well-being and how physical activity and exercise can improve health outcomes

Empower people to improve health outcomes, and self-manage health conditions

Coach and motivate to increase engagement and self-efficacy in treatment and physical activity, including addressing client preferences, needs, barriers, and goals, and

[Accredited exercise physiologists] apply a person-centred approach to people of diverse backgrounds and populations and work collaboratively with clients and relevant others involved in supporting their health and well-being.

An Occupational Therapist is described by Occupational Therapy Australia on their website as:

•         Occupational therapy is a degree-based health profession, regulated by AHPRA. Occupational therapists use a whole person perspective to work with individuals, groups and communities to achieve optimate health and wellbeing through participation in the occupations of life

•         The term 'occupation' is used to describe all the everyday things we do in our life roles, but also the things we do to be who we are, the things we do to create a meaningful life and to engage with wider society and culture..., and

•         Occupational therapy enables people to participate in activities they find meaningful. These activities include taking care of oneself (and others), working, volunteering, and participating in hobbies, interests and social events. Occupational therapy is a client-centred health professional that involves ongoing assessments to understand what activities you can do (and those you want to do), any current limitations, your goals/motivations and also to offer advice/techniques about how to do something more easily and safely.

You became a registered occupational therapist with the Australian Health Practitioner Agency soon after completing your MOT.

You currently carry on a sole trader business as an occupational therapist and exercise physiologist where you engage with clinics as an independent contractor.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

Your self-education expenses were incurred to enable you to open up a new income-earning activity as an occupational therapist, an activity in which you were not yet engaged at the time the expenses were incurred. As such, the expenses were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and are not deductible.

Detailed reasoning

The deductibility of self-education expenses falls for consideration under section 8-1 of the ITAA 1997. You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital, private or domestic in nature, or relates to the earning of exempt income (section 8-1 of the ITAA 1997).

The preposition 'in' found in the phrase 'in gaining or producing' has long been understood as meaning 'in the course of' gaining or producing. In Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; (1949) 8 ATD 431 the High Court held that for a loss or outgoing to be deductible 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 (TR 98/9) sets out the circumstances in which self-education expenses are allowable as deductions where the entitlement to income arises from employment or business.

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, the self-education expenses are allowable as a deduction (paragraph 13 of TR 98/9).

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, the self-education expenses are allowable as a deduction (paragraph 14 of TR 98/9).

However, no deduction is allowable for self-education expenses if the study 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). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (paragraph 15 of TR 98/9). They are incurred in getting, not in doing, the work which produces the income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541.

We believe that obiter comments of Lee J in FC of T v. Highfield 82 ATC 4463; (1982) 13 ATR 426 are consistent with this view. Although not necessary to decide, his Honour discussed whether expenses incurred by a dentist in general practice on a post-graduate degree in periodontics would have been allowable if the study had been undertaken to become a specialist periodontist (paragraph 60 of TR 98/9).

His Honour came to no final conclusion on the matter but recognised that there were equally competing views. On the one hand, such expenses could be said to be allowable on the basis that the dentist was an independent contractor who was attempting to obtain contracts. On the other hand, the expenses would not be allowable because the dentist was attempting to carry on a different income-earning activity or business and would be in no different position from a person who undertakes study to obtain a job. We believe that the latter view is the correct application of section 8-1 (paragraph 61 of TR 98/9).

TR 98/9 provides the following example at paragraph 62:

Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist.

In Assefa v FC of T [2009] AATA 2 (Assefa's case), the Administrative Appeals Tribunal (AAT) considered the issue of whether studying a course of education in order to advance to a higher classification of nursing was opening up a new income-earning activity. The taxpayer in this case was employed as an assistant in nursing and a care service employee while studying a Bachelor of Nursing degree.

The AAT held that no deduction was allowable for the self-education expenses. It was determined that there was a significant difference between the position of enrolled nurse and registered nurse on one hand, and personal care assistant/nursing assistant on the other. The taxpayer was not considered to be incurring the expenditure in gaining or producing her assessable income; rather, they were studying towards their initial qualification as a registered nurse.

Similarly, a nurse studying a Bachelor of Medicine would not be entitled to a deduction for any expenses in relation to the course of study. Although the medical degree would assist them in their current income-earning activity as a nurse, and perhaps even make them a better nurse, the course is designed to open up a new income-earning activity as a doctor.

Your case can be compared to that of the taxpayer in Assefa's case. While the knowledge you gained from undertaking the MOT may have assisted you in your then current income-earning activities as an occupational therapy assistant and exercise physiologist, any assistance is merely incidental to your main purpose for undertaking the MOT, which was to become fully qualified and use your qualifications to open-up a new income earning activity as an occupational therapist.

You do not need to have a MOT, or to be studying for such a qualification, to be able to work or be employed as an occupational therapy assistant or exercise physiologist. The skills and qualifications gained from a MOT are in excess of what is required for either of these income-earning activities.

Your self-education expenses were incurred at a point too soon to be regarded as being incurred in gaining or producing income from your future work as an occupational therapist. Nor are the expenses considered to be relevant and incidental to your income-earning activities at the time the expenses were incurred. As such, you are not entitled to a deduction for the expenses you incurred to undertake your MOT under section 8-1 of the ITAA 1997.