Private ruling: Work related self-education expenses
Date of advice: 24 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for self-education expenses relating to a specific course? | A1: No. | Q2: If the answer to question 1 is affirmative, can you amend your previous income tax returns to take the self-education expenses into account? | A2: Not applicable.

Relevant facts and circumstances: You are a senior manager with a state department. You commenced work with your current employer in early 20XX. You started a Masters degree in 20YY. The course fees have been paid under the HECS-HELP scheme. The main duties of your role include: • Develop strategies, policy advice and any other outputs that bring about consistency to the business operations generally, for example standards, guidelines, frameworks and papers; • Brief the Government on a variety of matters, not necessarily limited to your area of expertise; • Engage with the Government's agencies in order to produce outputs under the previous two points; and • Initiate or participate in the procurement of goods and/or services for governments (including observing all necessary probity requirements). From time to time your role has also included developing and carrying out governance, compliance and audit functions. In order to deliver on all of the above, what is ultimately required of you is the ability to perform research to a high standard, perform complex analysis and synthesis of concepts and information, communicate complex matters to a broad audience, and appreciate, manage and advise on risk. Your course enabled you to do your job because the overwhelming emphasis of the course is to train students to be highly competent in the areas of research, analysis and synthesis, communication and risk assessment and management. Your employer may ask you to review legislation to form a view as to the powers of a particular agency. Since you commenced employment with the state department you have been promoted across one grade and two additional value ranges. You believe that you have received these promotions because you are highly regarded, and add value, in the areas described above, each of which are maintained and improved by your studies. During the course of your studies you have realised that you want to pursue a different career so you are undertaking the studies to both carry out your role to the best of your ability and to facilitate working in the future. Your employer did not directly advise you to undertake the study but has been supportive. You manager is flexible with you taking study leave. They agreed to allow you to work part time to accommodate your studies.

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

Reasons for decision: Summary: The self-education expenses incurred in undertaking the course do not have the necessary and relevant connection with the earning of your current assessable income. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the Income Tax Assessment Act 1997 . | Detailed Reasoning - Detailed reasoning: 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. 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 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 ( 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. No deduction is allowable for self-education expenses if the study is designed to enable the 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. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) ( Maddalena's 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. Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces their assessable income ( Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case. To determine whether circumstances exist which would support your deduction for the course, 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 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. Case V132 88 ATC 842 concerning a librarian studying computing again confirms that it is not sufficient for a taxpayer to claim their studies will enable them to perform their duties more efficiently and enhance promotional prospects, where it is felt that the studies are not essential to their present duties and effectively open up a new field of employment. In Gupta v. FC of T 2002 ATC 2319; 2002 51 ATR 1205 (Gupta's Case) the taxpayer was undertaking a Bachelor in Computer Science while he was employed on a casual basis as a demonstrator in the University's School of Computing and IT. The taxpayer claimed deductions for his self-education expenses on the basis that there was a direct connection between the expenses incurred and his maintaining or improving his skills necessary for the work at the university. The Commissioner of Taxation denied the claims on the basis that the expenses were incurred to enable him to gain his degree, and were not incurred in the process of earning his assessable income as a part-time employee. The taxpayer sought a review of this decision by the Administrative Appeals Tribunal (AAT). The AAT held that the self-education expenses were not deductible as the expenses were not incurred in gaining or producing the taxpayer's assessable income from casual work at the university. That income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon. Although the above cases are not identical to your circumstances, the principles have relevance. You currently have skills and experience as a senior manager. However, there is no evidence to show that the qualifications from the course are necessary in carrying out your current role. 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. In your case, there is no implicit or explicit condition to pursue the studies. Such qualifications are not essential although may improve your performance in your current employment. The course provides you with qualifications that are far in excess of the requirements of your current positions and cannot be said to be sufficiently related to the earning of your assessable income. While the course may assist you in the performance of your income earning activities, equally true to say that virtually any experience and the acquisition of any knowledge will contribute to the individuals own development with consequent benefit to the employment duties. Yet expenses incurred in acquiring this knowledge and experience do not become expenses incurred in gaining your assessable income. The benefit obtained from your course is only incidental as your studies are providing you with knowledge and skill far greater than what is required in your work. By applying the principles as established in the above cases to your case, it is considered that the expenses of the course are not themselves directly attributable to the derivation of your assessable income as a senior manager. Consequently, the self-education expenses incurred in undertaking the course do not have the necessary and relevant connection with the earning of your current assessable income. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.