Private ruling: Self education expenses
Date of advice: 22 October 2020
Published: December 2020
Ruling period: Year ending 30 June 2021
Date scheme commenced: 1 July 2020

Ruling: Q1: Are the course fees as part of Flight Instructor Rating you will undertake be deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Are the motor vehicle expenses and purchase of training materials incurred due to study of Flight Instructor Rating you will undertake be deductible under section 8-1 of the ITAA 1997? | A2: No.

Relevant facts and circumstances: You are employed as a Pilot. You intend to apply for the position of Type Rated Instructor (TRI). The role of TRI involves you continuing your current duties as a Pilot however also enables you to train new and existing Pilots. In order to apply for the TRI role, you are required to obtain a Flight Instructor Rating in accordance with Civil Aviation Safety Regulations 1998 . You intend to complete the study of Flight Instructor Rating. You will incur course fees. You will travel in order to complete the course. You will be required to purchase training materials in order to complete the course. Your employer will not contribute to these costs.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-20

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. The Commissioner's view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business. 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 to 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). 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. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541). 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. Self-education courses are generally undertaken to further yourself in a position that you already hold. The following examples provided in TR 98/9 are relevant: 59. Example: Joseph is currently employed as a clerk in a public service department. He would like to transfer to a position in another section of the department and undertakes a course of study designed to equip him with the skills needed in that position. The study is unrelated to the skills required in his current position and is not likely to lead to an increase in income. As the study is designed to enable Joseph to enter a new income-earning activity, no deduction is allowable. ... 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. In your case you are a First Officer Pilot at. You wish to obtain your Flight Instructor Rating to enable you to apply of the position of Type Rated Instructor (TRI). The TRI position means that while you will still complete your duties as a First Officer Pilot, you will also train new and existing Pilots. You are unable to commence within the TRI position until you have completed this course. The cost of the course will be incurred for the purpose of gaining skills so that you can apply for the TRI position and you were not earning any assessable income as a TRI at that time. Your circumstances are comparable to the above examples outlined in paragraphs 59 and 62 in TR 98/9. That is, the course is to help you start up a new income earning activity as a TRI. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable business income and are not deductible under section 8-1 of the ITAA 1997. Accordingly you are not entitled to a deduction under section 8-1 ITAA 1997 for these expenses.