Private ruling: Deductions - self education expenses
Date of advice: 24 July 2024
Published: 2 September 2024
Ruling period: Year ended XX XXXX 20YY.
Date scheme commenced: XX XXXX 20YY

Ruling: Q1: Are you entitled to claim a deduction for expenses incurred for the flight screening course while working as a Licensed Aircraft Maintenance Engineer? | A1: No.

Relevant facts and circumstances: You have been a Licensed Aircraft Maintenance Engineer (LAME) for approximately XX years. In 20YY, you completed an aviation management course with a major in management which was granted on XX XXXX 20YY. On XX XXXX 20YY, you commenced a Graduate Diploma of Flying (GDF) with an Australian university. A pre-requisite for entry into the GDF course requires that you pass the flight screening course. You commenced the flight screening course on the same day. On commencing your flight screening, you transitioned to casual employment as a LAME with your employer Company A. You are still currently employed with Company A but have not been called upon while you were studying. You have not undertaken any flight duties while employed with Company A. On XX XXXX 20YY, you commenced casual employment with Company B as a LAME. Your duties within this role do not currently include flying. The subjects required to pass the flight screening course include: • basic aeronautical knowledge • flight rules and air law • meteorology • human factors. Flight screening requires the theoretical and practical components of a Recreational Pilot Licence. You completed the flight screening course on XX XXXX 20YY. Your course fees for the GDF course are covered under a FEE-HELP loan. You have paid the pre-requisite flight screening course fees of $XX out of your own money. You intend to commence full time work after your studies are completed within your current role as a LAME while working for Company B. You expect you will receive an increase of income by expanding your duties to include flight. You have not been reimbursed for your course fees or any associated expenses. You are estimated to complete your GDF course on XX XXXX 20YY.

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, or a provision of the ITAA 1997 prevents it. Several significant court decisions have determined that for an expense to be an allowable deduction: • It 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 assessable income. • It is necessary to determine the connection between the outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income. Taxation Ruling TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual discusses the circumstances under which self-education expenses are allowable as a deduction. Paragraph 22 of TR 2024/3 provides that self-education expenses are incurred in gaining or producing your assessable income if either or both of the following apply: • Your income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables you to maintain or improve that skill or knowledge. (Principle 1). • The self-education objectively leads to, or is likely to lead to, an increase in your income from your current income-earning activities in the future. (Principle 2). However, paragraph 23 of TR 2024/3 provides that self-education expenses are not incurred in gaining or producing your assessable income if either of the following apply: • The self-education will enable you to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in your current employment). This includes studies relating to a particular profession, occupation or field of employment in which you are not yet engaged. These expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income [ FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161( Maddalena )]. (Exclusion 1). • You are not undertaking income-earning activities to derive assessable income at the time you incurred the expenses. These expenses are not connected to any income-earning activity at the time they are incurred. (Exclusion 2). To determine whether your self-education expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities. | Detailed Reasoning - Application to your circumstances: Your primary occupation is a LAME. The flight screening course lacks a sufficient connection to your current income earning activities. The flight screening prerequisite for the GDF course enables you to obtain new employment or open a new income earning activity through the additional capability of flight, in which you are not already engaged as you are currently a LAME not required to undertake flight duties. Therefore, the pre-requisite course expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income. You are not eligible for claiming your expenses for the prerequisite flight screening course.