Edited version of private advice

Authorisation Number: 4130082303058

Date of advice: 29 October 2020

Ruling

Subject: Work-related expense and work-related self-education expense

Question 1

Can I claim a deduction for expenses incurred in relation to undertaking a Recognition of Prior Learning course as a work-related expense in my income tax return for the income year ended 30 June 20XX?

Answer 1

No

Question 2

If not, can I claim a deduction for expenses incurred in relation to undertaking a Recognition of Prior Learning course as a self-education expense in my income tax return for the income year ended 30 June 20XX?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You arrived in Australia on XX/XX/XXXX on a Working Holiday Visa.

Prior to arriving in Australia, you commenced your apprenticeship to qualify as a Technician with Institution A in Country A in 20XX. You completed your apprenticeship and obtained your qualifications as a Technician in 20XX.

You worked with a company in Country A as a Technician for X years and another company for X years. You then left employment to travel throughout a country.

Under the Working Holiday Visa you were granted the ability to work in Australia however you found you could not work in your chosen profession as a Technician for which you had previously obtained qualifications for.

In order to obtain Australian certification to allow you to apply for the Australian licences to work as a Technician, you were required to complete a Recognition of Prior Learning (RPL) course.

You commenced the RPL course on XX/XX/XXXX. The course led to you gaining a Certificate. You completed the course on XX/XX/XXXX.

You undertook the RPL course through Institution B

You provided a Tax Invoice/Receipt from Institution B dated XX/XX/XXXX for the RPL course for $X,XXX.XX

You were not reimbursed for the costs of the RPL course.

You provided two documents which list the units that were undertaken in this course. The documents were obtained from the Australian Government Training website.

As part of the RPL course, you completed two related practical assessments, an online assignment and one final assessment undertaken at Institution B before obtaining the Certificate.

You commenced working with your Employer on a full-time basis on XX/XX/XXXX Trade Assistant.

You were already a Technician in Country A so were not undertaking the RPL course to obtain your initial qualifications because you had the initial qualifications already and had been working in the field for many years.

In the Trade Assistant role, you worked alongside qualified Technicians.

You already had the experience and qualifications to do the work assigned in the Trade Assistant role. The Certificate provided Australian certification to enable you to apply for the Australian Licences. Once you completed the course, you applied for your Australian Licences, enabling you to work on your own as a Technician without supervision.

Your supervisor at the time you were working with your Employer as a Trade Assistant emailed Institution B requesting an urgent copy of your Certificate so that the relevant licences could be applied for to enable you to work unsupervised.

You provided a copy of an email dated XX/XX/XXXX

You indicated the course was directly related to the Trade Assistant role.

You did not provide a job description or employment contract for the Trade Assistant role or explain how the course was directly related to the Trade Assistant role.

You indicated completion of the course would also result in an increase in your ability to derive a higher income from your current work activities and the course. You also advised the course enabled you to improve specific skills and knowledge in relation to your current Australian work activities.

You advised once you completed the course you could work unsupervised with your Employer, which enables you to use your skills on jobs without supervision and for which they could charge their clients more. Consequently, you were also given a pay increase.

You advised you remained employed with your Employer when you completed your course on XX/XX/XXXX. You were employed with your Employer solely whilst undertaking the RPL course.

You advised you were employed as a Trade Assistant as you did not have Australian Standards Licences. The Trade Assistant role allowed you to carry out your day to day job under supervision from a Technician who had the respective licences.

On XX/XX/XXXX, you left your Employer, to take up employment with Company B working on sites in location A as a Technician.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings 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. Therefore, in considering whether you are entitled to a deduction, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your then current assessable income.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 56 ALR 785; (1949) 8 ATD 431 the High Court stated that:

'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.'

Taxation Ruling TR 98/9 (TR 98/9) Income tax: deductibility of self-education expenses incurred by an employee or a person in business 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).

However, 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). 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 (Maddalena's case)).

Paragraph 15 of TR 98/9 says:

The fact that the study will 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) is not a sufficient basis in itself for self-education expenses to be deductible. 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.

Many cases have applied the principle established in Maddalena's case. In Case U186 87 ATC 1066; (1987) 18 ATR 3943, the taxpayer was a solicitor who resigned from his employment to study overseas for a master's degree. His employer stated that he would be re-employed on his return. On completion of his studies he did in fact resume his employment with the firm of solicitors.

The Tribunal held that although the expenses were incurred with a view to the future generation of income, they were not incurred "in the course of" earning that future income. A connection between an expense and a future source of assessable income is not sufficient to be deductible.

In FC of T v M I Roberts 92 ATC 4787; (1992) 24 ATR 479, the taxpayer was a mine manager who undertook a Masters of Business Administration after he was retrenched. On completion of the course he was employed as a mine manager by another company.

The court held that the expenses were "moneys which were spent to obtain a new employment, albeit one in a better position and on higher wages. Being the cost to an employee of obtaining his employment, they do not form an outgoing incurred in the course of earning the wages payable in the employment."

Paragraph 14 of TR 98/9 says:

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, the self-education expenses are allowable as a deduction.

In case FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557, Menzies J held that expenses incurred by a primary school teacher in relation to the submission of theses to gain a Teacher's Higher Certificate were allowable. His Honour considered that the certificate expenses were related to the actual gaining of income because possession of the certificate entitled Mr Hatchett to move to another pay scale and, therefore, to earn more money in the future. It also entitled him to be paid more for doing the same work without any change in grade (125 CLR at 498; 71 ATC at 4186; 2 ATR at 559).

In your case, although your situation is slightly different to the above cases, the principles are relevant.

To determine whether circumstances exist which would support your deduction for the RPL course fees 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 you were undertaking at the time you undertook the course and incurred the expenditure.

You were not working at the time you commenced the RPL course and incurred your expenses. Generally, if you were not engaged in employment duties at the time, your expenses were not incurred in the course of any actual income earning activity.

You gained employment approximately 1 month after commencing the RPL course as a Trade Assistant. You remained earning your assessable income from the Trade Assistant role for the duration of the course.

Paragraphs 57, 59 and 62 of TR 98/9 are particularly relevant:

Paragraph 57:

Provides an example where an individual, 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. It is the company's policy to take only students who are pursuing relevant studies. Shannon is not entitled to a deduction for the cost of the course because the study is designed to get future employment in the field. It is incurred at a point too soon.

Paragraph 59:

Provides an example where an employee, Joseph is currently employed as a clerk in a public service department. He would like to transfer to a position in another section of the department and undertakes a course of study designed to equip him with the skills needed in that position. The study is unrelated to the skills required in his current position and is not likely to lead to an increase in income. As the study is designed to enable Joseph to enter a new income-earning activity, no deduction is allowable.

Paragraph 62:

Provides an example where an individual, Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist.

These examples highlight a deduction is not allowable for self-education expenses if the subject of self-education is designed to get employment, to obtain new employment or to open up a new income-earning activity. You have similar circumstances to these examples. You undertook the RPL course from XX/XX/XXXX to XX/XX/XXXX. You were not employed for the first month of undertaking the course then gained employment as a Trade Assistant. Once you completed the RPL course and obtained the qualification you commenced employment in a different role as a Technician.

The RPL course was undertaken for the sole purpose of providing you with the Australian qualification necessary to enable you to obtain the required Australian Standards Licences to work in Australia in your chosen profession. Some of the skills and competencies that the course imparted may enhance knowledge and skills of a Trade Assistant. However, at the time the expenses were incurred you were not employed in this role.

Had you incurred subsequent RPL course fees whilst you were employed as a Trade Assistant, you may have been entitled to a deduction. However, you did not outline your day to day work duties (position description or employment contract) and explain how the skills and competencies imparted by the course were applied to the work as a Trade Assistant. Based on the information provided, the course relates only in a general way to your role as a Trade Assistant and we are not satisfied the necessary connection between all units and the activities of a Trade Assistant exist.

Your expenses were incurred to help you obtain permanent employment as a Technician working without supervision which you could not previously do so. That is, the course has opened up new employment opportunities, albeit with the same employer. Such qualifications were not essential in your employment as a Trade Assistant. The course may have had some benefit to you in your work at the time, however that benefit is only incidental.

The RPL course was predominately designed to enable you to obtain the relevant Australian licences to get future employment as a Technician rather than to enhance your then current income earning activities. As a Trade Assistant you were not required to have the Certificate qualification and relevant licences. The course provided you with qualifications that are far in excess of the requirements of your position at the time.

Whilst your income increased upon completion of the RPL course, the increase in income occurred because you obtained a new income earning opportunity as a Technician. The increase in income did not occur and was unlikely to occur when you were employed as a Trade Assistant.

It is considered that the decision in Maddalena's case applies to your situation. Your course will enable you to earn assessable income as a Technician in the future for your employer and have been incurred at a point too soon. The course was not sufficiently relevant to your income-earning activities at the time you undertook the course. Accordingly, the expenses were incurred at a point too soon, and are not deductible under section 8-1 of the ITAA 1997.