Private ruling: Self-education expenses
Published: May 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are the costs of undertaking courses for reaccreditation of necessary qualifications used in the earning of income deductible when you undertake the study between leaving one employer prior to taking up employment with another employer? | A1: No.

Relevant facts and circumstances: You hold qualifications in a specific area. You used these qualifications in Australia before working overseas for a number of years. Prior to returning to Australia you undertook a training course to refresh your competencies and certificates in the area of your qualifications. You returned to Australia where you commenced employment. You use your qualifications as part of your employment role.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: The costs associated with attaining your reaccreditation were not incurred at the time you were employed. Whilst it is accepted that you had existing related qualifications, the reaccreditation allowed you to obtain employment. It is considered that these expenses were not incurred in gaining or producing your assessable income. Accordingly, you are not entitled to claim a deduction for the expenses. | Detailed Reasoning - Detailed reasoning: 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 TR 98/9 discusses circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's income-earning activities, at the time the expenses were incurred, 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. 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 Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161). In your case, at the time you undertook the reaccreditation courses you were unemployed. Therefore, at that time, your studies were not undertaken to maintain or improve an existing skill or knowledge used in your 'current' income-earning activities. Nor can it be said that the subject of your studies 'objectively led to, or was likely to lead to' a future increase in income from your 'current' income-earning activities. In your application you referred to Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348 ( Finn's case). In Finn's case, the High Court held that expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was allowable. Mr Finn undertook the tour whilst he was on a combination of long service and annual leave from his employment. Your situation can be differentiated from Finn's case as you were not on leave from your employment at the time you incurred the expenses. At that time, you were not employed and therefore not earning assessable income. The principle in Maddalena above applies. That is, the expenses associated with your courses are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income Accordingly, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for your self-education expenses incurred to undertake reaccreditation courses.