Private ruling: Self-education expenses
Published: August 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

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

Relevant facts and circumstances: You completed a degree hope to work in that profession as an XX. Towards the end of your degree, you took up part time employment with a firm as a casual YY. You worked for approximately two months. You then continued earning your primary income which is not related to your study. You commenced your course at the college on a part-time basis. The purpose of the study was to improve your employment potential in your desired field. The course is compulsory for prospective XX, however it is not compulsory to complete the course to work as a YY. During your course you were required to complete work experience, paid or unpaid. You started working (unpaid) one to two days a week as YY with the firm. In June 2013 the firm started paying you as YY and you began invoicing them as a contractor using your ABN. You continued working with the firm while continuing your studies at the college. You are now employed as a sessional lecturer. Your primary source of income (post study) is still teaching.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 8-5

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 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 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), • 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). Self-education expenses such as course fees are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities. Taxation Ruling TR 98/9 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. 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 taxpayer's current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. In your case, you started studying at the college part-time while continuing to work as a teacher. At the time you commenced your study, your main income earning activity was as a teacher. It is not possible to establish a connection between your self-education expenses and your 'current' income producing activities at the time of your study. Self-education expenses are not deductible where there is no connection between your main income earning activity and study. You enrolled in this course to improve your employment prospects as a XX. This course is compulsory if you wish to work as a XX, however it is not necessary if you wish to work as a YY. Although you were able to work as a YY, you participated in this course as a means to obtain future employment opportunities as a XX - a field in which you are not currently engaged. Self-education expenses are not deductible where they are seen to open new employment opportunities. As a requirement of the course, you were to undertake work experience. You began unpaid work with the firm, working one to two days a week as a YY. Through this experience, the firm started to pay you and you began invoicing them as a contractor for your services. You continued to work at the firm while you were studying, until just after your course finished. It was only incidental to your course requirements that you acquired this short term position of employment with the firm. Your primary objective was to complete the course. You were not working as a YY and studying on the side, rather you were primarily studying and worked incidentally as a requirement of your course. It was as a result of the skills you acquired during the course that you were later offered work in a paid capacity. Self-education expenses are deductible where there is a direct relationship between study and your current income earning activity. It cannot be said that the fees you incurred as a result of the course were directly connected to your 'current' income earning activities at the time you started studying. The purpose of your study was to expand your employment opportunities as a XX, rather than maintaining or improving a necessary skill for your current job. Your role as a YY, albeit in a paid capacity, was primarily undertaken to meet the requirements of your course, rather than gaining or producing your main form of assessable income. Accordingly, you are not entitled to a deduction for self-education expenses you incurred during your study under section 8-5 of the ITAA 1997.