Private ruling: Self education expenses
Date of advice: 18 June 2016
Published: June 2016
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim a deduction for self-education expenses? | A1: No.

Relevant facts and circumstances: You were employed as an independent sales consultant. You were responsible for the transfer over to the automated ordering system now used by the company, though this was not part of the role of independent sales consultant for which you were employed. By the time you were made redundant by this company, your role was that of Executive Program Manager, where your duties included: • Working on new programs • Workgroup facilitation for ideas and programing them into the new online systems you had built • Programming new specials into the system • Working with international leaders on their business and support tools • Providing a help desk function for numerous countries • Managing commissions files • Being on-call for all system issues • Building new company structure into the existing system Whilst you were employed and immediately after you were made redundant, you undertook two courses. Topics covered in the first two parts of these courses included: • What motivates you and drives your actions • Get clear on what you value most • Creating lasting change in your life It looked at: • how you handle conflict, • setting boundaries, • your belief system, • goal setting, • releasing toxic beliefs, • strategies for managing a toxic work environment, • defining what you really want to do in your work role The second parts of the course covered topics such as: • Business Mastery • Wealth Mastery • Life Mastery You completed second parts of the course after you were made redundant, to assist you in dealing with the shock of this. They helped you make the choices necessary to build your own sole trading business and to determine what type of work to undertake in the future. At around this time, you also commenced activities as a sole trader as an independent business representative. You have incurred expenses in relation to these courses, including airfares, visa fees, travel insurance, accommodation, materials and course costs.

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 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. 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 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) • 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 ( Hatchett's case ). 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). To determine whether circumstances exist which would support the deduction for a personal development course we must look to the 'essential character' of the expenditure. It is necessary to determine whether there is a sufficient nexus between the expenditure and the taxpayer's income-earning activities. In Case U101 87 ATC 616 ( Case U101 ) the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses. Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently. The AAT denied the claim and held that there was not a sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment. This view is supported in Case V13 88 ATC 163. In this case, the taxpayer was a life assurance saleswoman. In an attempt to improve her selling skills the taxpayer undertook, at considerable expense, a series of courses in communication, personal development and business skills. The taxpayer's claims for the cost of the course and for depreciation of books were disallowed by the Commissioner and her appeal to the objection was further disallowed by the AAT. In disallowing the claim P M Roach (Senior Member) indicated that he accepted that her studies contributed to her personal development in ways that gave her a greater self-confidence and a greater effectiveness in the arts of communication and there-by gave her a greater capacity to persuade others to follow courses proposed by her. He stated that despite these contentions, the courses undertaken were principally directed to the personal development of the individual and of her capacities. The courses under consideration were conducted at that level and were so closely and deeply involved with the individual person that they must be characterised as private. By applying the principles as established in the above cases to your case, it is considered that the expenses of the courses undertaken are not themselves directly attributable to the derivation of your assessable income within your role as an employee or in your self-employment. While the studies may be of assistance to you in the performance of your duties, it is equally true to say that virtually any experience and the acquisition of any knowledge will contribute to the individuals own development with consequent benefit to the employment duties. There are many experiences which would help in improving relationships with other people, yet expenses incurred in acquiring this knowledge and experience do not become expenses incurred in gaining your assessable income. Whilst we acknowledge that the courses may have provided you with tools and skills which can be used in your employment and your sole trader activities, the benefits are largely personal and private in nature. In other words, they were not a requirement of your duties in either your employment or your sole trader activities. Accordingly, all course costs and associated expenses are considered to be more related to development of personal capacity which is considered to be private in nature. The courses do not have sufficient direct nexus to your income earning activities and are therefore not deductible.