Edited version of private advice

Authorisation Number: 1052316880163

Date of advice: 11 October 2024

Ruling

Subject: Deductions - self-education expenses

Question 1

Can you claim a deduction for self-education expenses in relation to course fees for a Graduate Diploma in Legal Practice?

Answer

No.

Question 2

Can you claim a deduction for self-education expenses in relation to course fees for a Masters of War Studies?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Since 20XX, you have been employed as a teacher for employer A.

You are a modern history and legal studies teacher. You are also the head of department for Humanities, Technology, and LOTE.

As a teacher your key responsibilities are:

•         Planning, assessing and reporting for subjects.

As Head of Department your key duties include:

•         Ensuring curriculum alignment and moderation

•         Innovation in pedagogical practice and student engagement in classrooms.

•         Development of teaching expertise across faculty.

•         Curriculum development and implementation within faculty.

•         Level two plans AC alignment, planning, and documentation.

•         Quality assurance processes including moderation and calibration.

•         Day-to-day management of staff and faculty programmes.

•         Data analysis and outcomes tracking.

•         Student improvement plans and support provisions.

•         Pedagogical coaching.

•         Faculty staff APDP development, implementation, and review

•         Curriculum area administrative and reporting functions

On XX XXXX 20XX, you made a payment to the organisation A to commence a Graduate Diploma in Legal Practice (PLT).

From XX XXXX 20XX to XX XXXX 20XX, you completed the following subjects for your PLT:

•         Ethics and Professional Responsibility

•         Lawyers Skills

•         Civil Litigation Practice

•         Property Practice

•         Commercial and Corporate Practice

•         Criminal Law in Practice

•         Wills and Estates Practice

From XX XXXX 20XX to XX XXXX 20XX, you undertook a Master of War studies at organisation B. You completed the following units:

•         Unit 1

•         Unit 2

•         Unit 3

•         Unit 4

You used FEE-HELP to pay for the Masters of War studies.

On XX XXXX 20XX, you incurred the debt for unit 1 and unit 2.

On XX XXXX 20XX, you incurred the debt for unit 3 and unit 4.

You maintained your employment with employer A throughout the beforementioned studies.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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.

The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that:

... to come within the initial part of [section 8-1] 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 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 sets out when an employee can deduct a work expense under section 8-1 of the ITAA 1997. For the purposes of this Ruling, 'work expense' means 'a loss or outgoing you incur in producing your salary or wages'.

For the expense to be deductible it but be in gaining or producing assessable income. Paragraphs 16, 22, 23 and 25 of the TR 2020/1 state:

16. For expenses incurred by employees, the fundamental question is whether an expense is incurred in the course of earning employment income. This involves considering the proper scope of the particular taxpayer's work activities to determine if the circumstances of the expense have a sufficiently close connection to earning the employment income.

22. The requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income.

23. Accordingly, in some cases, expenditure would be regarded as too remote from the income-earning activities or incurred only as a prerequisite to earning income, and not incurred in the course of producing that income.

25. Other examples of expenditure that would be too remote from the income-earning activity, or incurred at a point too soon to be characterised as incurred in the course of earning assessable income, would be expenses of looking for and securing new employment. This would also be the case for relocation expenses to work in a different city or state. Similarly, education expenses to obtain qualifications for new employment would not be incurred in the course of gaining or producing relevant assessable income.

A deduction cannot be claimed if it is for private or domestic purposes. Paragraph 47 of TR 2020/1 states:

47. Although the separate presence of a private test within section 8-1 implies that expenditure of this nature could otherwise qualify as a deduction under the positive test, it has been observed that it is a 'rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature'. Characterisation of an expense as private typically supports a conclusion that the expense does not have a sufficiently close connection to the earning of assessable income by the employee.

Taxation Ruling TR 2024/3 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 (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

Paragraphs 13 to 16 and 19 of the TR 2024/3 state:

13. To be deductible under section 8-1, expenditure must be able to be characterised as having been incurred in gaining or producing assessable income.

14. It is well established that the words 'in gaining or producing assessable income' are to be understood to mean 'in the course of' gaining or producing assessable income and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

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

16. 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.

19. Having the support or encouragement of your employer to undertake the self-education also is not, by itself, determinative of whether the expense is deductible.

Under paragraph 22, Self-education expenses are incurred in gaining or producing your assessable income if either or both of the following apply:

Your income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables you to maintain or improve that skill or knowledge. (Principle 1)

The self-education objectively leads to, or is likely to lead to, an increase in your income from your current income-earning activities in the future. (Principle 2)

Paragraph 23 lists exclusions where Self-education expenses are not incurred in gaining or producing your assessable income if either of the following apply:

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. (Exclusion 1)

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. (Exclusion 2)

Paragraphs 81 to 85 discuss apportioning expenses if only part of the deductible is incurred in gaining or producing assessable income.

81. The use of the phrase 'to the extent' in section 8-1 means that there are circumstances where expenses may be deductible only in part if incurred in gaining or producing assessable income as well as for some other use, object or purpose. In these circumstances, it is appropriate to apportion expenses incurred between income-earning and other uses.

82. It is the objective relationship between your expense and your income-earning activities which usually determines whether the expense is incurred in gaining or producing assessable income. In most cases the reason for the expense will be apparent and it will not be necessary to enquire further. However, for expenses voluntarily incurred, which self-education expenses often are, your subjective purpose or motive for incurring the expense may be a relevant factor in determining what the expense is for.

83. For self-education expenses, you apportion the expenses as follows:

•         Where the self-education expense has distinct and severable parts, and some are for an income-producing purpose and others are for some other purpose, you apportion the expense according to its particular purpose.

•         Where the self-education expense is a single outlay that serves both an income-earning purpose and some other purpose, you apportion the expense on a fair and reasonable basis. What is fair and reasonable depends on your particular facts and circumstances.

84. Without limiting the application of paragraph 83 of this Ruling, where a course, when considered in its entirety, is not deductible under section 8-1 but particular subjects, classes or modules within the course are sufficiently connected to your income-earning activities, you apportion the expenses by claiming a deduction only for the expenses relating to those particular subjects, classes or modules that are deductible.

85. If there is an incidental purpose, you apportion the expenses as follows:

•         If the purpose of self-education is the gaining or producing of assessable income, the existence of an incidental private purpose does not affect the characterisation of the self-education expense as wholly incurred in gaining assessable income.

•         If you are on a holiday or attending an event for private purposes and the self-education was merely incidental to the private purpose, only those expenses directly attributable to the self-education (provided they are incurred in gaining or producing your assessable income) are allowable.

Paragraphs 79 and 97 to 109 discusses the course fees. Paragraphs 79, 101 and 102 state:

77. If you receive government assistance in the form of rebatable benefits (for example, Youth Allowance, Austudy and ABSTUDY payments) related to self-education, you cannot claim a deduction for the self-education expenses against that government assistance.

100. If you use borrowed money to pay for course fees, this will not affect the deductibility of those fees or when you can claim a deduction. However, you cannot claim a deduction for repaying the principal amount borrowed.

101. For example, a full fee-paying student using a FEE-HELP loan or a personal loan can claim a deduction for their course fees (where they are deductible) at the time they pay those fees using the borrowed money. They cannot claim a deduction for repaying the loan, either as part of their income tax assessment or as voluntary repayments.

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 expenses and your income earning activities at the time of commencing the courses. Whether such a connection exists is a question of fact and is to be determined by reference to all the facts in your case.

Question 1 - Graduate Diploma in Legal Practice

The Commissioner is not satisfied that your study of the Graduate Diploma in Legal Practices has the relevant connection to your income earning activities for it to be deductible under section 8-1 of the ITAA 1997. There is only a general link between completing this course and your employment as a legal studies teacher.

The self-education will enable you to get employment, to obtain new employment or to open up a new income-earning activity. This includes studies relating to a particular profession, occupation or field of employment in which you are not yet engaged. In your circumstances, the self-education will enable you to open up a new income-earning activity as an admitted lawyer. The practical legal training is a structured training program designed to help you develop the practical, day-to-day skills you will need as an entry-level lawyer. These expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income. Therefore, the expenses associated with completing the diploma are not deductible.

Question 2 - Masters of War Studies

You are employed as legal studies and modern history teacher over the duration of your Masters of War Studies. The position description of your role confirms that the Masters of War Studies has a clear connection to your income earning activities. Furthermore, you remained employed with employer A for the duration you incurred the course fees and completed the units. You additionally paid the course fees with FEE-HELP.

As such, the course fees incurred to undertake the units for the Masters of War studies will be deductible in the year in which the expenses were incurred.