Private ruling: Self-education expenses
Date of advice: 17 February 2021
Published: April 2021
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the cost of obtaining your qualification as a professional an allowable expense? | A1: No.

Relevant facts and circumstances: You started a Professional Programme (the Programme). The Programme ran for X weeks. You obtained two loans to finance the programme. You received a Letter of Offer of employment after you completed the course, which you accepted. Prior to your current employment you were employed in an unrelated field.

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 or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it. 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). The deductibility of self-education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for your course fees, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable income. Taxation Ruling 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). 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 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). 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. 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). In your case, your participation in the Professional Programme was undertaken in order to obtain new employment in the profession. The expenses associated with the Professional Programme are therefore incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for self-education expenses relating to the Professional Programme.