Edited version of private advice

Authorisation Number: 1052248645987

Date of advice: 7 May 2024

Ruling

Subject: Deductions - self-education

Question 1

Can you claim a deduction for self-education expenses incurred for semester 1 and 2 units of the Master of Business Administration?

Answer

No.

Question 2

Can you claim a deduction for self-education expenses incurred for semester 3 and 4 units of the Master of Business Administration?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commenced on:

DD MM 20YY

Relevant facts and circumstances

You began studying a Master of Business Administration at X University.

The course was split into X semesters, commencing in MM 20YY and ending in MM 20YY.

You incurred course fees of $X for semester 1 units with a census date of DD MM 20YY. You paid for these fees on DD MM 20YY.

You incurred course fees of $X for semester 2 units with a census date of DD MM 20YY. You paid for these fees on DD MM 2022 and DD MM 20YY.

You incurred course fees of $X for semester 3 units with a census date of DD MM 20YY. You paid for these fees on DD MM 2022 and DD MM 20YY.

You incurred course fees of $X for semester 4 units with a census date of DD MM 20YY. You paid for these fees on DD MM 2022 and DD MM 20YY.

The total cost of all 4 of the semesters was $X.

You provided descriptions of each of the units and their learning outcomes.

You did not receive any third-party assistance and paid for the course fees out of pocket.

You began working full-time at Company A on DD MM 20YY in Position A.

You provided a description of your employment role.

You were continuing your studies throughout your full-time employment to maintain/improve your skills to perform your role's duties.

You are still employed in the same role full-time.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Reasons for decision

Question 1

Summary

You are not able to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 for the expenses incurred for your Master of Business Administration semester 1 and 2 units.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (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 TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual (TR 2024/3), discusses the circumstances under which self-education expenses are allowable as a deduction.

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).

When a self-education expense is incurred

You incur an outgoing at the time you owe a present money debt that you cannot escape. The meaning of incurred is discussed in Taxation Ruling TR 97/7 Income Tax: section 8-1 - meaning of 'incurred' - timing of deductions (TR 97/7)

Paragraph 6 (a) of TR 97/7 states:

A taxpayer need not actually have paid any money to have incurred an outgoing provided the taxpayer is definitively committed in the year of income. Accordingly, a loss or outgoing may be incurred within section 8-1 even though it remains unpaid, provided the taxpayer is 'completely subjected' to the loss or outgoing. That is, subject to the principles set out below, it is not sufficient if the liability is merely contingent or no more than pending, threatened or expected, no matter how certain it is in the year of income that the loss or outgoing will be incurred in the future. It must be a presently existing liability to pay a pecuniary sum.

With reference to Thomas and Commissioner of Taxation [2015] AATA 687 (Thomas) an expense is incurred when an amount is actually paid or when a definitive obligation to pay the amount arises. Fees for courses that have a census date are incurred on that date unless they have been paid prior to the census date.

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.

You enrolled in a Master of Business Administration at X University in MM 20YY.

You undertook units in semesters 1 and 2 of the Master of Business Administration at X University. We consider the date that you incurred the expense for these subjects to be the date you paid for the subjects.

You commenced employment with Company A on DD MM 20YY as a XXX.

The self-education expenses for semesters 1 and 2 were incurred before you commenced your employment and do not meet the requirements of section 8-1 of the ITAA 1997. The Semester 1 and 2 expenses have been incurred at a point too soon to have a sufficient connection with your income earning activity.

Question 2

Summary

With consideration of Taxation Ruling TR 2024/3, the self-education expenses you incurred in your semester 3 and 4 units of the Master of Business Administration are deductible under section 8-1 of the ITAA 1997.

Detailed reasoning

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).

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.

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

This means there must be a close connection between the expenditure and what it is that you do to produce 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.

Circumstances may arise where a taxpayer incurs expenses before and after commencing employment where the self-education expenses become relevant to the taxpayer's current income earning activities that were previously unrelated.

TR 2024/3 provides the following example:

Example 15 - self-education expenses to get new income-earning activity not deductible; self-education expenses later incurred with connection to income-earning activities deductible

69. Tommy is a part-time nursing student. He supports himself by driving taxis. Having completed sufficient modules to be able to work as an enrolled nurse, Tommy applies for a part-time job as an enrolled nurse and is successful.

70. Tommy cannot claim the nursing study expenses he incurs while earning income as a taxi driver. This includes course fees he pays before he starts working as a nurse, even if the fees cover modules that he has not yet completed.

71. However, now he is working as an enrolled nurse on a part-time basis, Tommy can claim the self-education expenses he incurs after he commenced working as an enrolled nurse.

Application to your circumstances

You undertook units in semesters 3 and 4 of the Master of Business Administration at X University. We consider the date that you incurred the expense for these subjects to be the date you paid for the subjects.

You were working as Position A at Company A full time. The self-education expenses relating to semesters 3 and 4 were incurred after you gained employment.

Based on the description and learning outcomes of the units, the self-education expenses for semesters 3 and 4 have a connection to your current income earning activities are deductible under section 8-1 of the ITAA 1997. Semester 3 units are deductible in the 20YY financial year and semester 4 units are deductible in the 20YY financial year.