Edited version of private advice

Authorisation Number: 1052210604505

Date of advice: 18 January 2024

Ruling

Subject: Self-education expenses

Question

Are you entitled to a deduction for the self-education expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the costs of undertaking a university program?

Answer

No. Your self-education expenses are not deductible as there is an insufficient connection between the expenses and your assessable income.

This ruling applies for the following periods:

Year ending 30 June 2024

Year ending 30 June 2025

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You commenced studying for a university program in 20XX with an expected completion date being 20XX.

Once you graduate from the course you will be employed as an intern in that particular industry.

From 20XX to 20XX, you completed Module A. You are not seeking to claim a deduction for this course.

In 20XX you were invited by the university to apply for a paid position.

From 20XX to 20XX, you will commence Module B. You are seeking to claim a deduction for this course.

In 20XX, you will also commence casual employment for the Module A class at the university. To obtain this role you are required to:

1.    be enrolled in a university course in 20XX (which will be Module B).

2.    receive a distinction for Module A course in 20XX (which you achieved).

In 20XX you intend to complete Module C. You are seeking to claim a deduction for this course.

In 20XX you also intend to apply for A role for the Module B class at the university. To obtain this role you are required to:

1.    be enrolled in a university course in 20XX (which will be Module C).

2.    receive a distinction for the Module B course in 20XX.

The cost of each module is:

•         Module A - $XX.

•         Module B - $XX.

•         Module C - $XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

To be deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), expenditure must be able to be characterised as having incurred in gaining or producing assessable income.

Taxation Ruling TR 2023/D1 Income tax: deductibility of self-education expenses incurred by an individual, 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. A deduction is also allowable 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 their current income earning activities in the future.

This means there must be a close connection between the expenditure and what it is that you do to produce assessable income, or if none is produced, would be expected to produce your assessable income.

It is not enough to show only that there is some perceived connection, general link or casual connection between the expenditure and the production of your income. The reason or motive for undertaking the self-education is not determinative of whether the expense is incurred in gaining or producing assessable income.

Paragraph 23 of TR 2023/D1 states:

23. Self-education expenses are not incurred in gaining or producing your assessable income if any of the following applies:

(a) The self-education will enable you to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in your current employment). This includes studies relating to a particular profession, occupation or field of employment in which you are not yet engaged. These expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income.

(b) You are not undertaking income-earning activities to derive assessable income at the time you incurred the expenses. These expenses are not connected to any income-earning activity at the time they are incurred.

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. Whether such a connection exists is a question of fact and is to be determined by reference to all the facts in your case.

We consider the primary purpose of you undertaking the university program is for you to obtain qualification and future employment in that particular industry. The course is not designed for students to obtain casual employment at a university. While you are required to be enrolled at the university to obtain the casual role - the nexus is not strong between the university subjects and the role. The main purpose for you undertaking the course is to obtain a new job as a professional in that specific industry, not to gain casual employment at your university.

Example 11 in TR 2023/D1 is relevant to your situation:

Example 11 - self-education to get new employment not deductible

61. Shannon, who is undertaking a 4-year university degree in mining engineering, takes a job as a casual employee with a mining company during the end of year holiday period after her second year of study. It is the company's policy to take only students who are pursuing relevant studies.

62. Shannon is not entitled to a deduction for the self-education expenses relating to the course because the study is designed to get future employment in the field. It is incurred at a point too soon.

Paragraph 56 is also applicable:­­

56. The following have been identified by courts and tribunals as circumstances in which self-education expenses are incurred at a point too soon:

•         the self-education is undertaken with an intention to obtain new employment based on evidence of arrangements (such as employment discussions) with a prospective employer.

•         the self-education is designed to enable you to open up a new income-earning activity, whether in business or in your current employment.

•         the self-education is towards an initial qualification which would not increase your ability to perform your current income earning activities.

Even if we were to accept that there was a sufficient connection between the costs associated with your enrolment in the university modules and your casual university position, the expense was incurred so that you could obtain new employment. Incurring the expense did not lead to an increase in income from your current income earning activities.

Conclusion

We consider that you are not entitled to a deduction for your self-education expenses incurred in undertaking the university program as the Modules A and B do not have the necessary connection against your current income-earning activity. Therefore, the subjects are not allowable deductions under section 8-1 of the ITAA 1997.