Private ruling: Self- education expenses
Date of advice: 8 December 2017
Published: April 2018
Ruling period: Year ending June 20XX
Date scheme commenced: July 20XX

Ruling: Q1: Are you entitled to a deduction for your self-education expenses? | A1: No

Relevant facts and circumstances: You are presently a resident of Australia and have a visa. You work. You commenced studying. You were a casual employee. Your current duties include being in charge of duties, daily care, preparation and production of high quality product. Following instructions and recommendations from your superiors. You were required to travel to suppliers and markets to collect/purchase products. The program focuses on management more than preparation, with an expectation to take courses for both areas of work. The degree prepares you to work in a department. You are looking to improve your chances of getting a job, improve your career prospects and to help the businesses that you will work for. You would like to work as a manager or supervisor in a large establishment or take on management duties in the future. You believe it will lead to “future occupation with same employer”, lead to a promotion in the same field and increase in pay.

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. The Commissioner’s view on the deductibility of self-education expenses are explained in Taxation Ruling TR 98/9. According to paragraph 13 and 14 self-education expenses are allowed if: ● a taxpayer’s income earning activities are based on the exercise of a skill or some specific knowledge, and the self-education course enables the taxpayer to maintain or improve that skill or knowledge; or, ● 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 their current income earning activity in the future. Therefore, provided there is a sufficient connection between your self-education and current income earning activities, you are entitled to claim a deduction for your self-education expenses. However according to paragraph 15 of TR 98/9, no deduction is allowed for your self-education expenses if the study is to: ● enable you to get employment ● enable you to obtain new employment, or ● open up a new income-earning activity (whether in business or in your current employment). This view is supported by the decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 , which establishes the principle that no deduction is allowable for self-education expenses if the study, viewed objectively, is designed to enable a taxpayer to get employment or obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. In your case, although you may gain knowledge and skills from the course that could be of some assistance in your general work, it is not a requirement to undertake your duties. The aim of the course is for those wishing to work in the area of management. It is considered that there is an insufficient connection between the skills and knowledge required in your duties and the course. Furthermore, it is considered that the study is designed to open up a new income earning activity as a manager or supervisor. As there is an insufficient nexus between the course of self-education and your income earning activities, the self-education expenses associated with the course are not incurred in earning your assessable income. The issue of self-education expenses and casual employment was considered in Gupta v. FC of T 2002 ATC 2319; (2002) 51 ATR 1205. In that case the taxpayer commenced a Bachelor of Computer Science degree, and subsequently began casual work at the university’s School of Computing and Information Technology as a computer laboratory assistant. The Administrative Appeals Tribunal held that the essential character of the expenses was to qualify the taxpayer through obtaining his degree so that he could get ahead within the Information Technology industry to a more highly paid position. They accepted that his experience gave him the knowledge necessary for the casual university work, which was relatively low-skilled and routine. They found that on completion of the degree, however, the taxpayer would have acquired more highly developed skills, qualifying him to undertake more responsible and demanding work than previously. It was held that the expenses were not incurred in gaining or producing the taxpayer’s assessable income from casual work at the university that income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon. In your case the expenses you incur for your degree are considered to have been incurred in the pursuit of obtaining your qualifications and to obtain future employment and not in gaining or producing your assessable income from the casual work you performed while studying. The income you earned from your casual work was merely incidental to your studies. The fact you obtained employment in a related industry as that of your study is not considered decisive. Rather, your circumstances are more aligned to those in Gupta's case , in that you were studying while working part-time. It is considered that your study was to enable you to obtain qualifications that would allow you to secure a full-time employment and a more highly paid position at a later date. Therefore, it is considered that your self-education expenses are not incurred in earning your assessable income. Rather, they are incurred to enable you to complete your degree and to seek better work in your chosen field. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997. Consequently you are not entitled to a deduction for the expenses.