Private ruling: Self education expenses
Date of advice: 8 January 2016
Published: March 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for the fees incurred in completing your course? | A1: Yes. | Q2: Are you entitled to a deduction for the professional fees you paid? | A2: No. | Q3: Are you entitled to claim a deduction in relation to all of your motor vehicle travel undertaken while studying? | A3: No.

Relevant facts and circumstances: In order to enhance your skills in your current employment you decided to undertake further study. Your employer encouraged you to do this along with several other employees. After paying your course fees and starting your course you were made redundant. At the time you paid the course fees you had no idea that you were going to be made redundant and if you had of known you would not have proceeded with the course. After being made redundant you paid for professional fees in connection to the course. You undertook motor vehicle travel in completing the course. Your records show only a portion of the motor vehicle travel was undertaken prior to you being made redundant.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 28-12 | Income Tax Assessment Act 1997 Section 28-25

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 the course of gaining or producing the assessable income, but are not allowable to the extent that they 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 of the ITAA 1997: • 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 connection 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) • 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). 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 ( Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348). In Thomas v FC of T (2015) ATC10-404, [2015] AATA 687, the taxpayer was an associate director in the private equity investment team at National Australia Bank (NAB). During that time, he decided to undertake further study on a full-time basis. NAB was generally supportive of the taxpayer's intentions for further study. The taxpayer applied for and was accepted into an MBA course at Ecole des Hautes Etudes Commerciales de Paris (HEC Paris). A payment agreement was signed by the taxpayer, with his father as guarantor. The agreement stated that it was a commitment to pay the course fees in three instalments, the first of which was non-refundable. Just after the taxpayer had paid for his flights, visa and the first instalment of fees he was made redundant by NAB. The Commissioner accepted that the money paid for the flights and the visa were incurred when they were paid, prior to the taxpayer being unemployed, and an allowable deduction. The AAT held that the taxpayer had not incurred the second and third instalments while employed as the commitment to pay was not definite. Only the first instalment of fees was an allowable deduction as it was the only amount deemed non-refundable and incurred in gaining or producing assessable income. | Detailed Reasoning - Course Fees: At the time of commencement of the course you were employed and it is accepted that the course would enhance your skills that are required in your position. This satisfies the test of the expense being connected to your assessable income at the time. You were made redundant after paying your course fees, meaning that you were no longer receiving assessable income that could be linked to the expense. However, as discussed above, course fees paid prior to being made redundant were considered to be deductible in Thomas's case . In that case the course fees considered deductible were non-refundable. In your case, the documentation available about the course shows that the fees in relation to some of your subjects were definitely not refundable and there is substantial doubt as to whether you could have received a refund with respect to the other subjects. As there is considerable uncertainty as to whether you could have received a refund for those other subjects, we have accepted that you incurred all your course fees when you paid them. In your case, at the time you incurred the course fees, the course was directly related to your employment making the fees paid prior to your redundancy deductible expenses. | Detailed Reasoning - Professional Membership: After your employment ceased you paid for a professional membership in order to obtain material for the course. Even though the membership can be linked to the course, the payment was not incurred until it was paid. This date is sometime after that date on which you were made redundant and not earning assessable income. The necessary connection between the professional membership and your income earning activities does not exist. Therefore no deduction for this expense is allowable under section 8-1 of the ITAA 1997. | Detailed Reasoning - Travel Expenses: Paragraph 194 of TR 95/15 states that a deduction is allowable for transport costs in connection with a course of education in the following situations: • the cost of travel between home and the place of education and then back home • the first leg of the trip, if a taxpayer travels from home to the place of education and then on to work (the cost of travelling from the place of education to work is not a self-education expense) • the first leg of the trip, if a taxpayer travels from work to a place of education and then home (the cost of travelling from the place of education to home is not a self-education expense), and • the cost of travel between work and the place of education and then back to work. Your travelling costs were incurred in travelling between home and your place of education and back home again. However, only a portion can be attributed to the time period when you were still employed by your employer. This means that you incurred the remaining portion after you were made redundant. As there is no connection between the distances you travelled after your employment was terminated and your employment activities you are not entitled to claim that portion of travel. You are therefore only entitled to a deduction for the travel conducted while you were still employed.