Private ruling: training expenses
Published: June 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for expenses incurred for the training program? | A1: No.


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

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 or are necessarily incurred in carrying on a business for the purpose of 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 deduction is only allowable if an expense: · is actually incurred, · meets the deductibility tests, and · satisfies the substantiation rules. We acknowledge you have incurred the expenses for the program, however it is necessary to consider if the expense meets the deductibility tests. The deductibility of self education and training expenses fall for consideration under section 8-1 of the ITAA 1997. A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997: · 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), · 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. 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. However, TR 98/9 states that 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. Paragraph 42 or TR 98/9 states: If a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self education expense and the income earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances. TR 98/9 states that a personal development course that places particular emphasis on professional skills needed in the employment environment, and where trained instructors supervise a structured program, is accepted as being a course of education provided by a place of education. In Case U101 87 ATC 616 ( Case U101 ) and Naglost v. FC of T (2001) 2002 ATC 2008; (2001) 49 ATR 1028 ( Naglost ), the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses. Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently. The aim of the course was to assist those who felt in need of motivation and purpose in life and to improve self esteem. The AAT denied the claim and held that there was not a sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment. It could not be said that the studies were part and parcel of the employment, or that they were incurred in the process of carrying out duties as an employee. Nor could it be seen that they would have a direct effect on the taxpayer's income. Conversely, in Naglost the AAT allowed a partial deduction to a serving member of the Royal Australian Air Force (RAAF) who undertook a course of study at 'Mastery University'. The taxpayer's duties included management responsibilities and the course of study was designed to enhance leadership, management capabilities and decision-making processes. Further, the course was approved by the taxpayer's employer and some expenses were reimbursed by the RAAF. Testimony from the taxpayer's superior officer stated that the course would enhance the taxpayer's ability to perform at a high level. The AAT held that the majority of the courses were relevant to the taxpayer's occupation, but that the course 'Wealth Mastery' was of a purely personal nature and thus not deductible. The AAT held that the majority of the expenditure was allowable as it was considered to be directly relevant to the applicant's role as a manager. The applicant had direct management responsibility for a group of 20 to 25 people and was responsible for the unit's physical training, plus occupational health and safety. Therefore, expenditure on the course was considered to be sufficiently relevant to the taxpayer's income producing activities. Naglost demonstrates that a personal development course will have the 'essential character' of an income-producing expense where a taxpayer can demonstrate a link, not only to skills and knowledge in general, but also to their current duties. Cases such as Case M10 (1961) TBRD 69 ( Case M10 ) and Case V13 88 ATC 163 ( Case V13 ) support the view that personal development courses are not considered to be incurred in earning the income from a taxpayer's occupation. These expenses are considered to be incurred in developing the taxpayer's personal capacity and experience, thus are considered to be private in nature. The expenses are more correctly characterised as those which are necessary to put the taxpayer in a position to carry out the income earning activities. In Case M10 , the taxpayer was an agent for a life assurance society. He was denied a deduction for the cost of a Dale Carnegie Course in which he received instruction and training on Effective Speaking, Leadership Training and Human Relations. The prospectus of the course states that the course consists of a combination of public speaking, salesmanship, human relations, personal development and applied psychology. In disallowing the deduction claimed, the member of the Tribunal commented that expenditure by a taxpayer upon development of his personality, self-confidence and self-expression can only be expenditure of a private nature whatever the ulterior purposes may otherwise be served. The course was in the nature of an advanced educational training for people in all walks of life and was private in nature and not allowable as a deduction under section 8-1 of the ITAA 1997. It was held that there was insufficient connection with his occupation. In Case V13 , the taxpayer was a life assurance sales woman. In an attempt to improve her selling skills the taxpayer undertook, at considerable expense, a series of courses in communication, personal development and business skills offered by the Church of Scientology. She claimed that the purpose of her study was to improve her selling skills. The taxpayer's claims for the cost of the course and for depreciation of books were disallowed by the Commissioner and her appeal to the objection was further disallowed by the AAT. In disallowing the claim P M Roach (Senior Member) indicated that he accepted that her studies contributed to her personal development in ways that gave her a greater self-confidence and a greater art of communication and there-by gave her a greater capacity to persuade others to follow courses proposed by her. He stated that despite these contentions, the courses undertaken were principally directed to the personal development of the individual and of her capacities. The courses under consideration were conducted at that level and were so closely and deeply involved with the individual person that they must be characterised as private. The training program covers a number of areas to help participants become champions of business. These areas help participants on all dimensions of their life - not just sales or marketing. The program is designed for business building and geared towards business owners. However it is also for employees who want to increase their income. Although the workshops focus on how to implement concepts in your business and focused on business owners, we acknowledge that the selling techniques may be helpful in your current employment duties. The program also includes time management, creating wealth and achieving financial success. It also includes personal development to foster a positive mental attitude and have positive thinking. The cost incurred also allows others to have access to the program. The program is open to people from any field. The membership provides you with opportunities to be coached and mentored in various life skills. Although the program may expand your personal and professional influence, the courses are directed to the self improvement and personal development for the participants. It is not considered that the program is directly related to your current income earning activities as in Naglost. Unlike Naglost's case , the majority of the program is not directly relevant to your current employment duties. The program, similar to Case V13 , focuses on the individual's goals and dreams. The program focuses on improving the individual person regardless of their occupation rather than improving your qualities as an employee. The expenses incurred in acquiring this knowledge and experience are not expenses incurred in gaining your assessable income. Furthermore, the benefits are largely personal and private in nature. Although the skills and knowledge acquired may impact on your working life, it is not a cost that is sufficiently connected to your current assessable income. By applying the principles as established in the above cases to your case, it is considered that the expenses of the program are not themselves directly attributable to the derivation of your assessable income as a sales manager. The fact that the program has helped you in some aspects of your employment is not sufficient to enable the expenditure to be allowed as a deduction. There are many experiences that may help an employee, however, this does not automatically mean that the associated expenses are deductible. Furthermore, although the program influences your future financial success, this does not automatically mean that the associated expenses are deductible. We acknowledge that you have received increased income, however the nexus between the program and the derivation of your assessable income is too remote. The program is more private in nature in helping you gain wealth. The program is too general in terms of your income earning activities and the associated costs do not have a sufficient nexus to the derivation of your assessable income. While it may develop some of your existing skills, it also provides you with new skills to be implemented in all aspects of your life. The expenses for the program are considered to be more related to your personal development which is considered to be private in nature. Therefore the expenses are not deductible under section 8-1 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You are employed as a sales manager. | Your job description includes: | Generate new business opportunities with clients. | Sell advertising solutions to a list of clients as allocated or personally developed with the objective of building, development and growing the relationship and revenue. | Provide sales manager with accurate revenue forecasts. | Achieve monthly sales budgets. | You use the internet to find potential clients, design new campaigns and to report on campaigns to clients. | You undertook the training program under your own initiative to fast track your career. You started the program in late 2011. | The program is a tailored and customised business and professional coaching and mentoring program for highly ambitious business executives and entrepreneurs. | The primary goal of the program is for the participant to acquire missing business management and career development skills, abilities and attributes required to establish and create on-going success in his/her chosen field or activity and/or profession. | The training gives you access to a number of programs. | You are a graduate of one of the programs where you learned how to improve your career skills which enabled you to increase your earnings. | One of the outcomes you expect to achieve is to continue increasing your personal income per year. | You have incurred expenses in relation to the program during the 2011-12 income year. | As a training program member, you and your team (including your spouse or partner) will have access to the program. The program also includes relationship strategies. | The program provides ongoing coaching and mentoring. | You commenced your current job in early 2009. Between January 2009 and December 2011 you have won awards. | Your employer has allowed you to attend events and workshops during paid time off. | Your employer has not paid for or reimbursed any of the costs of the program.