Edited version of private advice

Authorisation Number: 1052404605576

Date of advice: 16 June 2025

Ruling

Subject: Deductions - self-education

Question

Are you entitled to a deduction for the cost of post-graduate tuition fees, global services fees, law technology fees, registration and services fees expenses incurred to undertake a Master of Laws under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question

Are you entitled to a deduction for the cost of the student health insurance incurred to undertake a Master of Laws under section 8-1 of the ITAA 1997?

Answer

No.

Question

Are you entitled to a deduction for the cost of accommodation expenses incurred to undertake a Master of Laws under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question

Are you entitled to a deduction for the cost of the airfare incurred to undertake a Master of Laws under section 8-1 of the ITAA 1997?

Answer

No.

Question

Is the Law School scholarship awarded to you assessable income under section 6-5 of the ITAA 1997?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You graduated with a Bachelor of Laws and a Bachelor of Arts in MM 20YY.

You were employed with xxx xxx Graduate Programme as a graduate on a full time 12-month basis from DD MM 20YY.

In MM 20YY you were admitted as a lawyer.

On DD MM 20YY you commenced a full-time position as a lawyer with xxx xxx.

You have provided a generic job description for a lawyer, xxxx with xxx xxx.

The key responsibilities of your role are listed in your offer of employment variation.

You took extended unpaid leave of absence from your role from DD MM 20YY with an expected return to work date of DD MM 20YY. You have not been paid an income from your employer since DD MM 20YY.

You undertook a leave of absence and separate employment for a non-ongoing full-time position in a legal role with an Australian institution from DD MM 20YY to DD MM 20YY.

On DD MM 20YY you enrolled in a Master of Laws at City A Law School, in Country A.

You advised you undertook this study to strengthen your legal career; and that many Australian lawyers complete further legal studies in the Country A to strengthen their Australian legal careers.

You also advised that the study will provide a 'return on investment' in the future with a potential higher earning capacity and may end up at a better chambers/list or be able to get better and higher paying briefs and justify your ability to charge more if you have a post-graduate degree in law.

You departed Australia on DD MM 20YY.

You entered the xxx on a non-immigrant student visa.

You were accompanied by your partner.

The course of study commenced on DD MM 20YY.

You completed the course of study on DD MM 20YY.

You have provided a transcript which shows you completed the twelve units of study:

You were awarded a law school scholarship which was disbursed directly to your student account in two equal instalments to defray the cost of tuition.

You are employed with the City A Law School as a casual Research Assistant for a faculty member for monetary compensation from DD MM 20YY until DD MM 20YY.

Statements of Account from City A Law School bursar show a total amount owing for both semesters.

The statement of DD MM 20YY shows credit amounts for both semesters:

Your employer has not reimbursed you for any expenses relating to the course of study.

Your partner has reimbursed you for a share of accommodation on DD MM 20YY.

You advised that you have not decided yet whether you will seek ongoing employment in Country A or return to your position with xxx xxx.

You have not returned to Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 51-10

Income Tax Assessment Act 1997 section 51-35

Reasons for decision

Section 8-1 of the 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 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) sets out when an employee can deduct a work expense under section 8-1 of the ITAA 1997. The pivotal element of section 8-1 of the ITAA 1997 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'.

Paragraph 22 of TR 2020/1 provides:

'...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.'

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...'

A number of significant court decisions have determined that for an expense to be an allowable deduction:

•                     it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478),

•                     there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

•                     it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

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.

TR 2024/3 explains a deduction is allowable forself-education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill orsome specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve thatskill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348.

Paragraphs 15 to 17 of TR 2024/3 state:

"... 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.

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.

The question of what produces your assessable income should not be approached narrowly. It requires consideration of the tasks to be performed and the duties to be observed (referred to as your income-earning activities)."

Furthermore, no deduction is allowable for self-education expenses if the study is to enable the taxpayer to get new employment, to obtain new employment, or to open up a new income earning activity.

If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) (Maddalena's case).

Where a course is too general in relation to your current employment duties, the necessary connection between the expense and your income earning activity does not exist and no deduction is allowed.

Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

To determine whether circumstances exist which would support a deduction for study of the Master of Laws at City A, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

If the self-education is too general in terms of your current income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. That is, the self-education must have the requisite connection to your income-earning activities at the time.

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.

Courts and tribunals have found the following when considering whether self-education expenses were incurred to maintain or improve knowledge or skills:

Case U109 87 ATC 657 demonstrates the principle that just because expenditure may lead to a taxpayer being 'better' at their employment, this does not necessarily mean that the expenditure is deductible. In Case U109, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He incurred expenditure to undertake a 17-day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip, he visited several volcanoes and other geological sites and attended a geological congress. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal concluded the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities and that the expenditure was not deductible.

Application to your circumstances

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.

It has not been adequately detailed or explained how the units of study you have undertaken specifically relate to the area of law in which you practice. Therefore, it is considered that there is insufficient connection between your Master's studies in Country A and your current income earning activities. The requisite connection between the expenditure and your assessable income is absent.

A deduction is not allowable for self-education expenses if the self-education is designed to get employment, to obtain new employment or to open up a new income-earning activity. The course of study must have a sufficient connection to your current work activities as an employee.

You have also advised that the expenses of the self-education were incurred as an investment in the future with a potential for higher earning capacity in your employment.

It is considered that the decision in Maddalena's case also applies to your situation. In this case, the expenses have been incurred at a point too soon. As highlighted above, where a course is undertaken to open up another source of income earning potential from the qualification, a deduction is not generally allowable.

In your case, it appears your purpose of undertaking the studies appears to be designed more for a future role rather than to enhance your current employment duties. Nor has it been demonstrated that the course of education will lead to an increase in your income from your current employment. Accordingly, the self-education expenses associated with undertaking the studies are not an allowable deduction.

It is not sufficient to say that the study will enhance your ability to perform the duties of your employment. The nexus must be direct. Further, your employment did not require you to obtain additional legal qualifications, nor were they necessary for admission to practice. The Master's qualification may be desirable but is not mandatory to your current employment. The studies at the Master level would be at a higher level than has been demonstrated is required for your current position in a junior role.

Your studies will give you new qualifications and enable you to obtain employment in the field. However, it has not been sufficiently demonstrated how the studies are sufficiently relevant to your present income-earning activities. Consequently, the self-education expenses incurred in undertaking the Master of Laws at City A Law School, Country A do not have the necessary and relevant connection with the earning of your current assessable income. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.

Health insurance

ATO Interpretative Decision ATO ID 2001/615 Income tax: Deductibility of travel insurance details that expenses such as insurance policies invariably cover items that are generally private in nature. This interpretive decision also lists Waters v. FC of T ATC 10-157 in which the Tribunal held that a taxpayer who had acquired travel (including medical) insurance prior to commencing work overseas was not entitled to a deduction for this expenditure. This expenditure could not be regarded as being incurred by Mr Waters 'in the course of' gaining or producing his assessable income and was otherwise not deductible as it was an expense of a private or domestic nature.

Application to your circumstance

In your case, you incurred the costs of student health insurance expenses to enable you to undertake your self-education at City A Law School. Although it is accepted that these expenses were paid as a pre-condition to enable you to attend the university, this does not change the fact that these expenses under section 8-1 of the ITAA 1997, are private in nature. You are therefore not entitled to a deduction for health insurance expenses under section 8-1 of the ITAA 1997.

Accommodation

No deduction is allowable for expenditure on accommodation and meals where a taxpayer has travelled to another location for self-education purposes and you are living in a new location. In this case, accommodation expenses would be regarded as private in nature.

Taxation Ruling TR 2024/3 states: If you are not away from home overnight for self-education connected with your income-earning activities, a deduction is not allowable for any living expenses you incur, such as meals or accommodation. This expenditure is a private or domestic living expense because it is incurred by you to maintain your usual residence or to consume food and drink as you go about your daily activities.

Accommodation and meal expenses are allowable where the taxpayer is required to be away from home overnight, but not where the taxpayer establishes a new home base.

This will apply regardless of whether the self-education allows you to acquire and improve the skills and knowledge you require to carry out your income-earning activities or leads to, or is likely to lead to, an increase in income from your income-earning activities.

The following factors indicate when your accommodation expenses are private and domestic living expenses, and are not deductible:

•                     the length of the overall period you will be away from your usual residence is a relatively long one

•                     the nature of the accommodation is such that it becomes your usual residence

•                     you are, or can be, accompanied by family or friends or visited by family or friends.

No single factor is decisive, and the weight given to each of these factors will vary depending on your individual circumstances.

Application to your circumstance

You are staying in long-term accommodation, accompanied by your partner and you are living in City A for the entirety of the study course and your employment with City A Law School following completion of your study. You do not own or lease any property in Australia. You have also advised that you are unsure if you will return to Australia. The on-campus apartment accommodation is therefore considered to have become a new home according to the criteria set out int TR 2024/3 (see also example 36).

In your case, the accommodation expenses you incur in connection with the self-education study course are considered private and domestic living expenses as you are residing at the location while you undertake the self education activity. You are therefore not entitled to a deduction for accommodation expenses under section 8-1 of the ITAA 1997.

Airfares

The deductibility of airfares is dependent upon the reason the expenses were incurred. Where the course is an eligible self-education expense, you would be entitled to a deduction for the cost of your airfares.

Taxation Ruling TR 2024/3 states that airfares incurred to participate in self-education, provided you are not living at the location of the self-education activity, are deductible.

Application to your circumstance

In addition, it is considered you are living at the location of the self-education activity. You are therefore not entitled to a deduction for your airfare expenses under section 8-1 of the ITAA 1997.

Scholarship

A payment by an entity or authority on the condition that the student will (or will be required) become, or continue to be, an employee of the entity or authority is assessable income.

There is a general exemption for scholarships, bursaries or other educational allowances derived by a student receiving full-time education at a school, college or university (ITAA 1997 section 51-10, item 2.1A) where there is no condition that the student will be, or required to become, an employee of the payer.

Application to your circumstance

The scholarship was paid directly to your student account to off-set tuition fee expenses and is therefore provided principally for education purposes and was not conditional that you be an employee, or contract, with the paying entity and would not, therefore, form part of your assessable income (ITAA 1997 section 51-35).