Private ruling: Self education expenses
Date of advice: 26 June 2019
Published: August 2019
Ruling period: Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 September 2017

Ruling: Q1: Are your self-education expenses an allowable deduction under 8-1 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: You are currently a veterinarian focusing on production animals (cattle and sheep). You have recently achieved membership of Australian and New Zealand College of Veterinary Scientists in the area of ruminant nutrition. This area relates to cattle medicine, production and ruminant nutrition. Your day to day work duties are broken down into the following percentages: · You spend x percent of your working week on the farm with the livestock, you arrange testing and preparation of and protecting the welfare of all livestock destined for live export. · x percent of your working week you are directing a small team when out on the farm, organising schedules, protocols and finalisation of associated work documentation. · With the last x percent of your working week, you consult with the farmers and provide advice on food nutrition, associated costs and expected return of the investment on the livestock. It is part of your job to analyse new technology and new research applicable to livestock production, you then transfer this knowledge to groups of farmers and vet students. You are enrolled in a Graduate Certificate in Entrepreneurship and Innovation. You do not receive any financial assistance in relation to the course. The graduate certificate has been identified by your employer as being adequate to increase your knowledge in providing advice to the farmers on cost efficient and productive running of their production animal's business. You will continue to work full time whilst undertaking the course. The course units compromise of three compulsory units and one electiveconsisting of Accounting, Innovation and Entrepreneurship, Small business Management, and Management of Technology and Innovation. The university website states the course is especially useful for managers and owners of small to medium businesses who wish to acquire skills and knowledge in areas of entrepreneurship and innovation. You will learn how to deal with uncertainty, manage innovation and improve the business through the application of best practice methods of small business management and new product development.

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

Reasons for decision: Summary: The Graduate Certificate you are enrolled in has been described as being useful for owners and managers of small to medium business to acquire knowledge in the areas of entrepreneurship and innovation. There is not a sufficient nexus with the earning of your assessable income as a veterinarian and the course is not necessary for your day to day work duties. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Detailed reasoning: Section 8-1 of the 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 in which self-education expenses are allowable. Paragraphs 12 to 15 of TR 98/9 provide: 12. Self-education expenses are deductible under section 8-1 where they have a relevant connection to the taxpayer's current income-earning activities. 13. If a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction. 14. 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. 15. The fact that the study will 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) is not a sufficient basis in itself for self-education expenses to be deductible. 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. Paragraphs 33 and 34 of TR 98/9 are particularly relevant: 33. 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). 34. Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces his or her assessable income ( Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344 at 349-350; (1956) 11 ATD 147 at 148; (1956) 6 AITR 379 at 384; FC of T v. Cooper 91 ATC 4396 at 4403; (1991) 21 ATR 1616 at 1624; Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508 at 4521; (1993) 26 ATR 76 at 91). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case. Where a course is too general in relation to your current employment duties the necessary connection between the expense and your income earning activity does not exist and no deduction is allowed. To determine whether circumstances exist which would support your deduction for the Graduate Certificate 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. While some of the subjects may provide knowledge and skill when consulting with the farmers this is not the core of your work and does not require qualifications in the chosen subjects. The Graduate Certificate 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 employment duties as a veterinarian. In your case, although your employer has supported your decision to further your education, such qualifications are not essential in your current employment. Although the course may have some benefit to you in your current work, that benefit is only incidental as your studies are providing you with knowledge and skill in a field you are not currently employed. Your studies will assist you in future business ventures and are designed more for a future role rather than to enhance your current income earning activities. 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 Graduate Certificate in Entrepreneurship and Innovation will provide you with the skills in running your own business and provide financial advice to the farmers; this will give you new qualifications and enable you to run your own business. The studies are not sufficiently relevant to your present income-earning activities.