Private ruling: Self education expenses
Published: March 2015
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction for the costs of undertaking a management course that focuses on the health services field? | A1: No.

Relevant facts and circumstances: You have a qualification as a health practitioner. You are currently employed in a management position in the retail/manufacturing industry. You have also recently gained temporary part-time employment with a second employer as a health practitioner, with a view to gain on-going employment in this role. You have provided a vocational assessment from a career counsellor stating the completion of a course like this would not only assist in your current role as a manager, but also would then place you in a much better position to gain further employment opportunities as an administrator, trainee manager or project manager within the health system.

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) provides for the deductibility of a taxpayer's self education expenses. It 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. A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1: (a) 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); (b) 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); (c) 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). What is involved is a process of identifying the essential character of the expenditure to determine whether it is in reality an outgoing incurred in gaining or producing assessable income. | Detailed Reasoning - Self education expenses generally: The Commissioner's self education policy is set out in Taxation Ruling TR 98/9 - Income tax: deductibility of self education expenses, which makes the following points: • If the subject of self education is directly relevant to the activities by which a taxpayer currently derives assessable income, the associated expenses are an allowable deduction • If the study of a subject of self education objectively leads to or is likely to lead to an increase in the taxpayer's income from his current income earning activities in the future, then the expenses are an allowable deduction • No deduction is allowable if the study, viewed objectively, is designed to enable a taxpayer to get employment, to obtain new employment or to open up a new income earning activity • The intention or purpose of a taxpayer can be an element in determining the essential character of the expense. It may also relevant to consider whether a non income - producing purpose was the dominant purpose for incurring the expense • Expenses related to improving knowledge or skills are not of a capital nature • Self education includes courses undertaken at an educational institution (whether leading to a formal qualification or not), attendance at work-related conferences or seminars, self-paced learning and study tours Hence, self-education expenses incurred by a taxpayer will qualify for deduction under section 8-1 provided there is a sufficient nexus to the production of assessable income. | Detailed Reasoning - Self-education expenses in your situation: You wish to undertake a a management course that focuses on the health services field. To be able to claim a deduction for these self education expenses against your income you must show that: • The studies are directly relevant to your employment activities as a manager in the retail/manufacturing industry; or • The studies will lead to an increased income in your current position in the future. However, no deduction is allowable if the study, viewed objectively, is designed to enable you to obtain new employment or to open up a new income earning activity (whether in business or in your current employment). In looking at the factors listed in TR 98/9 and applying them to the facts that we have available in your case the following conclusions are reached. | Detailed Reasoning - Directly relevant to current income earning activities: You have described your employment as a manager. The course of study being considered is in the field of health services. Although you perform some duties in your current employment which would benefit from certain elements of your proposed course of study, your main income earning activity is not in the health services management field. The proposed course of study is far too general in terms of your income earning activities. | Detailed Reasoning - Likely to result in an increase in income from your current income earning activity: The course appears to have been undertaken in order to open up a new income earning activity rather than to increase income from your current employment. You are performing at senior management level in your current employment; therefore, prospects for advancement within this role would appear to be limited and that you would not expect to earn more income as a result of completing the course. | Detailed Reasoning - Open up a new income earning activity: The facts suggest that the course will be undertaken to give you qualifications in the health services management field so that you can gain employment in that field, that is, so that you can open up a new income earning activity. It follows that in your situation, it is considered that there is an insufficient connection between the course of study which focuses on the health services field and the activities performed in your current employment as a manager in the retail/manufacturing industry. In addition, it is unlikely the studies will lead to an increase in pay from your current duties. It is however, likely that you will receive greater remuneration in a new field of employment after completing the studies. Therefore, no deduction can be claimed for self education expenses as the tests outlined in section 8-1 have not been satisfied. It is noted that you also employed in a temporary part time position as a health practitioner. It is also considered that the management course that focuses on the health services field is not sufficiently related to this employment and no evidence has been presented to show that the course will lead to an increase in income from this employment.