Private ruling: Self-education.
Date of advice: 16 May 2019
Published: July 2019
Ruling period: Year ending 30 June 2019.
Date scheme commenced: 01 July 2018.

Ruling: Q1: Can you claim deductions for the following units of a law degree? ● Contracts ● Torts ● Equity ● Property and Trusts A | A1: No.

Relevant facts and circumstances: You are currently employed to teach in a non-legal field. You are currently undertaking a law degree. It is a requirement of your employment to undertake further studies and your study is noted in your professional development plan.

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. Taxation Ruling 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). The deductibility of self-education expenses was also considered by the High Court in FCT v Maddalena 71 ATC 4161; (1971) 2 ATR 541. The High Court held that self-education expenses incurred to obtain new employment or to open up a new income-producing activity do not have a sufficient relationship with a taxpayer’s current income-producing activities. They relate to future streams of income, rather than present streams of income, and so are incurred at a point too soon. In other significant court decisions such as Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478 at 497-498; (1958) 11 ATD 404 at 412, the High Court of Australia has indicated that the expenditure must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense. There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income ( Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; (1949) 8 ATD 431 at 435). If a course of study is too general in terms of a taxpayer’s current income-earning activities, the necessary connection between the self-education expenses and the income-earning activity does not exist even if the taxpayer may be ‘better’ at their income earning activity after the study. Case U109 87 ATC 657 demonstrates the principle that just because expenditure may lead to the taxpayer being ‘better’ at their employment does not necessarily mean that the expenditure is deductible. In that case the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He incurred expenditure to undertake a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities and that the expenditure was not deductible. We consider that in determining whether a deduction is allowable for self-education expenses we have to examine the entire course as a whole in terms of the connection between the course and your income earning activities. If the course as a whole is considered to be relevant and incidental to your income earning activities then the entire course would be deductible. If only a small portion of the course is related to your income earning activities then no deduction is allowable. Apportionment would only be appropriate if there is a substantial portion of the course that is related to your income earning activities and a substantial portion that is not. You are currently employed to teach in a non-legal field. You are undertaking a law degree. While one or more specific units may touch upon aspects of the material that you teach, the substance of what you teach is not legal in nature. We do not consider that there is a sufficient connection between a law degree and your employment as a teacher in a non-legal field. The part of the law degree that may have some relationship to your employment is considered minor and not sufficient for any deduction to be allowed in relation to the degree. You stated in your application that as a condition of your employment you are required to undertake further study. Having such a broad obligation to undertake further study is not sufficient to show a close enough connection between what is being studied and your income producing activities. Your employer’s policy may require you to undertake further study, but it was your choice to undertake a course in a field in which you are not employed. It is our view that the expenses incurred in studying a law degree are not incidental and relevant to your work as a teacher in a non-legal field.