Edited version of private advice

Authorisation Number: 1052187197893

Date of advice: 1 November 2023

Ruling

Subject: Work-related self-education expenses

Question

Are the course fees for Practical Legal Training deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ending 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are employed as an associate.

Your duties include:

•         Undertaking legal or general research

•         Assisting with the preparation, editing, or proofing of Tribunal orders and decisions

•         Liaising with parties and their representatives

•         Drafting case correspondence, directions, and interlocutory orders

•         Accompanying and supporting members in hearings.

You undertook Practical Legal Training at the College of Law.

The subjects included:

•         Lawyer's Skills

•         Ethics and Professional Responsibility

•         Civil Litigation Practice

•         Property Law Practice

•         Commercial and Corporate Practice

•         Administrative Law Practice

•         Consumer Law Practice.

You did not receive any financial support for your study.

You did the Practical Legal Training to become a legal practitioner.

Relevant legislative provisions

Section 8-1 of the Income Tax Assessment Act 1997(ITAA 1997)

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings 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.

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 for your course fees, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable income.

Taxation Ruling TR 2023/D1 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 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. They 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).

In Case Z1 92 ATC 101; AAT Case 7541 (1992) 22 ATR 3549, the applicant, a public service clerk who completed a six-month course at the college of law, claimed a deduction for expenses that led to her admission as a solicitor. The Tribunal held the admission fees were of a capital nature and were, therefore, not an allowable deduction. The admission expenses secured the applicant a 'lasting advantage'. They also secured her the status of a solicitor that was considered a 'profit yielding subject' (Sun Newspapers Ltd and Associated Newspapers Ltd v. FC of T (1938) 61 CLR 337; 5 ATD 23; [1939] ALR 10). In applying Maddalena, the Tribunal held that the admission expenses were also incurred in getting, not in doing, work as an employee. They came at a point too soon to be properly regarded as incurred in gaining assessable income.

To determine whether your self-education expenses are deductible, the essential character of the expenditure must be considered.

It is not enough to show only that there is some perceived connection, general link or causal connection between the expenditure and the production of your income. The expenditure must have a close connection to the performance of the duties and activities through which you earn your income.

It is acknowledged that the Practical Legal Training will assist in your current employment, however the course is designed to open up a new income earning activity as a legal practitioner. This is so, even if you remain in your current role with the same employer.

The Practical Legal Training will help you obtain future work as a legal practitioner and as such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997.