Private ruling: Self-education expenses
Published: August 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to claim a deduction for self-education expenses incurred while you were unemployed? | A1: No.

Relevant facts and circumstances: You were employed by a subsidiary company that is part of the X group. An opportunity for a promotion with another subsidiary became available subject to the successful completion of the course. In order to complete the training, your first employer made you resign from your employment with them, before releasing you to do the course. You undertook the training at your own cost. You successfully completed the training and were immediately employed by another subsidiary, who, carried over all employee entitlements, such as long service leave and sick pay entitlements from your previous employment start date with your first employer. You moved from one subsidiary to another, but for commercial reasons unknown to you, they made you resign from your first employer to do the training before re-employing you with the new subsidiary.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 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 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. 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. However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. In your case, at the time you were undertaking the training, you were unemployed. Therefore, during this period, your studies were not undertaken to maintain or improve an existing skill or knowledge used in your 'current' income earning activities. Nor, during this period, can it be said that the subject of your studies objectively led to, or was likely to lead to, a future increase in your income from your 'current' income-earning activities. Your studies were undertaken in order to gain new employment within the X subsidiary group through the completion of the training. Therefore the expenses incurred during your period of unemployment are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. While we appreciate that for reasons unknown to yourself you were required to resign with your first employer in order to undertake the study, whereupon the completion of the course you gained employment with another subsidiary on the terms of your previous employer, at the time of your study you were unemployed. As such, your self-education expenses were not incurred in earning the income from your previous employment as that income had already been earned when the expenses were incurred. Similarly, the expenses were incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income from your future employment. Therefore you are not entitled to a deduction for the self-education expenses incurred under section 8-1 of the ITAA 1997.