Private ruling: Deduction for self-education expenses
Date of advice: 16 October 2018
Published: December 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction for self-education expenses incurred in association with the attainment of your Doctor of Philosophy (Screenwriting) under section 8- 1 Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: In xxxx you began a higher degree. You graduated with a doctorate in screenwriting in xxxx. During the income tax year 1 July xxxx to 30 June xxxx you incurred additional expenses related to your degree including attending a conference where you presented a paper. You applied for and were appointed to a position commencing in xxxx xxxx. The role is for a 12 month period with an option to extend. This is not a salaried position but allows you to maintain close links to your academic work including applying for teaching and other positions as well as research grants. You registered a business name in xxxx. This is the brand name under which you represent yourself. You are continuing to undertake creative practice research and also to continue to promote your business. You state that the extent of your academic work is complimentary to your business activity. You state that you argue your self –education expenses should be considered business expenses since they support the development of saleable products which will be sold under the business banner. You acknowledge that your current paid employment is not related to your self-education expenses. You advise that your business has no profit and loss statements for the period 20XX – 20XX due to full time study. You have not reported any business income in this period of time and are not required to lodge business activity statements. Advertising of your business is undertaken in the small communities in which you live by word of mouth, face to face meetings and follow up leads on contracts. You plan to develop your digital footprint through social media pages and a website over time. You state you are a sole trader whose work is primarily from home and therefore you do not require insurances in your daily business activity. Your business plan indicates that it is about to embark on the licensing of your own drama scripts for performance through amateur and professional theatre organisations. It states that the business plan represents the intention to promote yourself firstly by highlighting your written works for stage, which productions are easier and cheaper to produce. The attention gained from stage production successes will gain attention for the screen. The business plan states your business is currently supported through your personal casual work as a child care educator and/or nursery worker.

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

Reasons for decision: Detailed Reasoning - Deductibility of self-education expenses related to salary and wage income: 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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses 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. In addition, 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, the self-education expenses are allowable as a deduction. However, the decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 ( Maddalena’s case ) establishes the principle that no deduction is allowable for self-education expenses if the study is to enable the taxpayer to get employment, obtain new employment or to open up a new income-earning activity (whether in business or 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. 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 ( Lunney v. FC of T ; Hayley v. FC of T (1958) 100 CLR 478 at 497 498; (1958) 11 ATD 404 at 412). 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). To determine whether circumstances exist which would support your deduction for your Doctorate of Philosophy, 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. In your case, you incurred self-education expenses relating to your Doctorate of Philosophy (Screenwriting) during the income year ending 30 June 20XX. During this period you were not gaining assessable income relating to script writing or film making. It is considered that the decision in Maddalena’s case applies to your situation. Your studies will assist you to produce income when you commence your business activity and have been incurred at a point too soon. As highlighted above, where a course is undertaken to open up another source of income earning potential from the qualification, a deduction is not generally allowable. The studies are regarded as not being sufficiently relevant to your present income-earning activities. Therefore, the expenses you incurred do not have the necessary and relevant connection with the earning of your current assessable income and you are not entitled to a deduction for self-education expenses incurred during the period 1 July 20XX to 30 June 20XX.