Private ruling: Self education expenses
Date of advice: 19 June 2015
Published: June 2015
Ruling period: Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2007

Ruling: Q1: Are the costs you incurred to acquire proficiency in a foreign language, including the costs of the language course and associated private tuition, deductible as an eligible self-education expense? | A1: No.

Relevant facts and circumstances: You are employed as a medical professional in Australia. You will be taking a period of sabbatical leave in the future to gain new knowledge and experience in a field relevant to your area of clinical practice and research and to share the new knowledge gained with colleagues upon your return. You made the decision several years ago that you would undertake your future period of sabbatical overseas after your period of qualifying service. You chose a non-English speaking country as your destination, as you consider it to be a country of foremost importance in your area of expertise. You considered similar courses in other English speaking countries though you consider they do not offer training of the high standard you are seeking to obtain in your country of choice. You set about gaining a mastery of that language through language courses in Australia. You also engaged a tutor to improve your fluency in the spoken language and to assist in your preparation for exams. You now hold diplomas in this language, which qualifies you to study at an academic institution in that country without the need to undergo further language assessments.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: 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 98/9 discusses circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction. The High Court of Australia has indicated that the expenditure 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; Hayley v. FC of T (1958) 100 CLR 478 at 497 498; (1958) 11 ATD 404 at 412). There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income ( Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; (1949) 8 ATD 431 at 435). Therefore, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces his or her assessable income ( Charles Moore & Co (WA) Pty Ltd v. FC of T ( 1956) 95 CLR 344 at 349-350; (1956) 11 ATD 147 at 148; (1956) 6 AITR 379 at 384). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case. Although being able to speak the foreign language will assist you during your future period of sabbatical leave, it is not a requirement to undertake your current duties as a medical professional in Australia. It is considered that there is an insufficient connection between the skills and knowledge required in your current duties and the language course and associated private tuition. As such, all self-education expenses associated with acquiring proficiency in the language are not incurred in earning your assessable income. Consequently you are not entitled to a deduction for the expenses under section 8-1 of the ITAA 1997.