Private ruling: Self-education expenses
Date of advice: 16 May 2019
Published: July 2019
Ruling period: Year ended 30 June 2019 to year ended 30 June 2026
Date scheme commenced: 1 July 2018

Ruling: Q1: Are the costs incurred in studying for your degree an allowable deduction? | A1: No.


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. A number of 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 ( Lunney v. FC of T ; (1958) 100 CLR 478 ( Lunneys case )), ● 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), and ● 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 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). 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 designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayers current employment. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income ( FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161 ( Maddalena )). Paragraph 62 of TR 98/9 states: 62. Example: Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist. 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. A causal connection with the earning of income is not sufficient. In Case R60 , 84 ATC 447 the Board of Review disallowed self-education expenses. The taxpayer was a public servant and the position required relevant experience or some legal training (which the taxpayer already had) but not legal qualifications as such. In the circumstances, the continuation of the taxpayer's legal studies could not be characterised as a relevant incident of or as part and parcel of his employment. While the legal studies were specified as an advantage for the position held and the taxpayer's legal training was relied on by the branch he was in, if the studies were discontinued, the branch would not have reacted at all. The branch head saw the encouragement given to the taxpayer as part and parcel of normal staff development. In Case Z1 22 ATR 3549; 92 ATC 101, a public service clerk studying for a law degree later obtained a legal officer position in the public service. The qualifications as a solicitor were not necessary for her current employment. The expenses were held to have been incurred in getting work as a legal officer not in doing work as an employee and therefore not deductible. At all times the taxpayer was employed in a position where such qualifications were not necessary although the gaining of such qualifications were encouraged. The course was pursued by the taxpayer of her own choice and for her own self-improvement. In applying Maddalena , the Tribunal held that the expenses came at a point too soon to be properly regarded as incurred in gaining assessable income. Even though a course may broaden your knowledge and make a person a better employee and better able to carry out their duties, as with the cases quoted above, the courts have held that this is not sufficient to enable the expenditure to be allowed as a deduction. There are many courses and experiences which may help an employee however this does not automatically mean that the associated expenses are deductible. Where a course is undertaken to open up another source of income earning potential from the qualification, a deduction is not generally allowable. In your case you are undertaking a degree. While a subject may provide knowledge and skill for your current role, this is not sufficient to show that your course expenses are an allowable deduction. Although the studies may help you with your current position, the course goes beyond this and gives you the qualification required to be able to work as a professional. That is, the course will help open up a new income earning activity. The degree will provide you with qualifications that are far in excess of the requirements of your current position and cannot be said to be sufficiently related to your current duties. The expenses are considered to be incurred to enable you to gain your degree, and not incurred in the process of earning your assessable income. It is considered that the expenses of the studies are not themselves directly attributable to the derivation of your assessable income. That is, there is an insufficient connection between the skills and knowledge required in your current position and your course. The expense of completing your studies will help you obtain future work and are incurred at a point too soon to be regarded as having been incurred in gaining your assessable income. The course does not have the 'essential character' of an income-producing expense. Accordingly, you are not entitled to a deduction for the associated expenses under section 8-1 of the ITAA 1997.

Relevant facts: You are commencing part time/incremental study towards a degree at a university. | You have been in your current position for a few years. You have other roles as well. | You receive additional remuneration for your other roles. | Part of your job requires various skills and knowledge. | The studies develop advanced knowledge and skills. | You are doing the study to acquire advanced skills and understanding to allow for advancement within your current role/career, as a number of desired roles require formal training for appointment. | Some subjects are beneficial to the carrying out of your duties. | Your study expenses include course fees and textbooks. | You are not reimbursed for your study expenses and do not receive an allowance in relation to your studies.