Edited version of private advice

Authorisation Number: 1052231793412

Date of advice: 14 March 2024

Ruling

Subject: Deductions - self education

Question

Are the expenses associated with your travel 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 30 June 20YY

The scheme commenced on:

1 July 20YY

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 booked, and paid for, overseas travel including a cruise visiting a number of locations for private purposes for yourself and your spouse.

Your travel itinerary included visits to locations in which you were able to visit sites of cultural significance and activity. You were aware that activities on this cruise might be relevant to an upcoming work opportunity.

The trip was cancelled due to the impact of the COVID pandemic, and your payment was held by the airline and cruise line as a credit.

Several years later you discussed the relevance of your activities on this tour to a business case and funding submission to establish a cultural centre and tourism business with a potential employer.

You rebooked your tour in that financial year and departed in the following financial year.

In the months between your rebooking of your travel and your departure on that travel you were engaged as a consultant by the company that was preparing the submission for a cultural centre and tourism business.

Under your contract you took a lead role in preparing this submission, and performed other duties as directed.

The term of your contract ended while you were still travelling.

Your contract provided for payment at a daily rate and provided for reimbursement of travel expenses within Australia. Travel expenses associated with your initial engagement were reimbursed under this provision.

Prior to your departure the company engaging your consulting services wrote to you and asked you to take notes and develop material for use in generating funding for their proposed cultural centre and tourism business. Your notes and the material you developed were subsequently incorporated into a presentation used for this purpose.

You used the credits from your previously cancelled booking for the rebooked cruise, and paid for the difference between the booked costs for your original travel itinerary and those that arose prior to departure, and some additional expenses not covered in the original booking.

While travelling you stopped and stayed in the locations listed in your original itinerary. The cost of your travel to these sites was included in the prepaid fees for your cruise.

Over the 80 days you were travelling you spent 30 days visiting culturally significant sites and undertaking culturally significant activities, and 26 days on board the cruise ship.

In the course of your visits to these sites and other relevant activities you took notes on your observations, and looked into how these had been turned into business activities.

You had done some research prior to your departure on the sites to be visited, and also developed briefings for consultancy on your return.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

Are the expenses associated with your travel deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The costs associated with your travel are not deductible because the travel was for private purposes, paid for at a point too soon to be directly connected with your engagement as a consultant, and are in no part attributable to the earning of your assessable income from that engagement.

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for expenses 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.

In determining whether an expense is deductible for income tax purposes it is necessary to establish a direct connection between the expense and an income generating activity. The principles on the deductibility of self-education expenses, such as those incurred on self-paced learning and study tours, under section 8-1 of the ITAA 1997 are discussed in Taxation Ruling TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual.

Costs associated with self-education that enables you to maintain or improve skills or specific knowledge are deductible where the skills or knowledge are closely connected to the performance of your income earning activities, or will lead to an increase in the amount you are paid for those activities. Factors that demonstrate a connection to your income earning activities include;

•        devoting all of your time while overseas to the advancement of your knowledge relevant to your work

•        the tour or trip is undertaken while you are employed in the relevant role

•        the tour or trip was not recreational or general in nature, but rather showed a particular special circumstance to differentiate it from mere recreational satisfaction

•        the tour or trip was requested or supported by your employer.

These costs are not deductible if the self-education will enable you to obtain new engagements or you are not engaged in income earning activities at the time you incurred the expenses. Self-education expenses that have been held in case law to have been incurred prior to new engagements include those in which discussions have been held with prospective employers prior to those engagements on the desirability of the self-education for the engagement. The deductibility of the self-education expenses ceases with the end of the income producing engagement they are connected with.

Self-education expenses are deductible to the extent that they not incurred for any other reason or private purpose. Where the expenses are incurred for both income generating and private purposes they must be apportioned by particular expenses that can be connected to the income generating activity, or on a reasonable basis if a single payment was made and individual components of the expense cannot be attributed to the income generating activity.

Self-education expenses that have been reimbursed are not deductible.

Your travel was booked for private purposes, and paid for in a year prior to that in which you were engaged as a consultant. You discussed the relevance of sites along the itinerary of your travel with a potential employer several years after you had made your original booking.

Six months later you were engaged as a consultant with the company with which you had discussed your travel itinerary. Prior to your departure on your travel the company asked you to take notes and develop material for use in generating funding for their proposed cultural centre and tourism business while visiting sites of cultural interest. Your notes and the material you developed were subsequently incorporated into a presentation used for this purpose. The cost of your visits to individual sites was covered by the prepaid fees for your travel.

As your travel was for private purposes, and paid for at a point too soon to establish a direct connection between the travel and your engagement as a consultant, the expenses for your travel will not be deductible under section 8-1 of the ITAA 1997.