Private ruling: Self-education expenses
Date of advice: 8 September 2020
Published: October 2020
Ruling period: Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022 | Year ending 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025
Date scheme commenced: 01 July 2019

Ruling: Q1: Are all your self-education expenses allowable deductions? | A1: No | Q2: Are part of your self-education expenses, detailed in Group A, allowable deductions? 1 | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are studying with Institution A and expect to complete your course in 20XX. You are studying part-time for a formal qualification, Masters of Business Administration (MBA) (Technology). You commenced the course on XX February 20XX. The course can be completed anywhere between X to X years. Each individual subject cost $X,XXXX. You are paying for the course under the FEE-HELP program. You are not being reimbursed for the subject fees. The MBA course comprises 12 subjects as follows: Mandatory commencing subject · Leadership Core subjects · Marketing Management. · Accounting and Financial Management. · Economics in Management Practice. · Managing People & Organisations. · Business Analytics. Technology specialisation subjects · Project Management. · Digital Innovation. · Digital Strategy. · Managing with Digital Technology. · Enterprise Risk Management Capstone (required subject) · Strategic Consulting Project You are self-employed and derive assessable income from XX via XX. X is an online platform for freelancers or sellers, to offer their digital services to customers globally. Each service offered is called a "gig". X is listed. Services offered include graphic design and writing. You do not have an employment contract, job description or business plan. You listed your work activities undertaken in order to earn your assessable income whilst undertaking the study. In 20XX you co-founded a partnership with Partner. You outlined the operations of the partnership and your role. Studying the course will directly impact your business through improving your skills and likely increase of income from operation efficiency changes, accounting improvement and reducing potential risks. Subject outline and explanation of how each subject relates to current income earning activities are grouped under Group A and Group B as follows: Group A Marketing Management Skills and competencies learned How it applies to work activities This is an introductory course in the marketing discipline, designed to provide you with the basic concepts, tools and techniques used in modern marketing so that you can apply them to real-life problem-solving and decision-making. It can be taken early in your degree program. The course illustrates how various facets of the marketing function interact with other areas of the business. It presents an overview of where the marketing function fits within the context of the organisation and is an extremely useful foundation course for further development of your general business management skills. Removed Accounting and Financial Management Skills and competencies learned How it applies to work activities Aim of this course is to show how the effective use of financial information can improve organisational decision-making. It provides a broad introduction to the accounting function. The language of accounting and financial management is exacting. The aim is to increase familiarity with key components of this language. It examines the design and operation of accounting systems. Users of accounting information are typically classified as either external users or internal users, such as managers. Different users have different interests and different decisions to make. Accordingly, their supporting accounting systems also differ. This course deals with the needs of these two main user groups. Removed Digital Innovation Skills and competencies learned How it applies to work activities Innovation and the management of technology are critical in driving economic productivity and improving the future wellbeing of society. Advances in the accessibility of modern technology, and increasingly connected social and alternative financing methods have decreased barriers in the practice of entrepreneurship, enabling digital innovation to flourish. As a result, digital innovation is empowering many people, from digital natives to those living in developing countries, to create solutions and drive change. In addition, the speed at which entrepreneurs can disrupt established business practices is causing more organisations to adopt agile and entrepreneurial methods for developing and managing new technology, products and services. Removed Digital Strategy Skills and competencies learned How it applies to work activities This course focuses on the key concepts, practices and issues in the strategic management of digital technologies. The course covers two key themes. First, the course examines the strategic role and organisational value of digital technologies, including digitally enabled innovation, digital ecosystems, and digital transformation and disruption. Second, the course examines the strategic management of digital technologies required to realise this value potential, including current and emerging approaches and frameworks for strategic decision-making about digital technologies, and the management of digital service delivery. Removed Managing with Digital Technology Skills and competencies learned How it applies to work activities This course aims to increase technical literacy of managers and leaders. The main objective of this course is to give managers a high-level overview of the fundamental concepts, main topics and problems in computer science and insights into contemporary information technology and how they relate to business settings, and thus equip them to make better decisions regarding applications of technology, even if they are not technologists themselves. This course takes a top-down approach and emphasises high-level mastery of important concepts in computer science and information technology. Students who successfully complete this course will feel confident in any technology organisation and will have an appreciation for the problems in the field, how they affect or constrain business decisions and how it all works. Removed Group B Leadership Skills and competencies learned How it applies to work activities This course is a comprehensive introduction to the topic of leadership. It aims to help students to build the confidence, knowledge, and skills to engage in effective leadership in a broad range of contexts. It also provides guidance on self-leadership and actively managing the process of growing as a leader. The course defines leadership not as a formal position of authority, but as a process of influence that delivers direction, alignment of activities towards that direction, and personal commitment to collective success. As such, leadership is potentially relevant to all MBA students who wish to exert influence and drive change. Removed Economic in Management Practice Skills and competencies learned How it applies to work activities The performance of an organisation is driven by firm-specific, industry and economic factors. Economics in Management Practice has been developed to give you a deeper understanding of all three of these factors and to provide a rigorous foundation for any further study that you pursue in the area of Strategy. Removed Managing People and Organisations Skills and competencies learned How it applies to work activities This course focuses on generalist managers who manage people - some you manage formally (such as your subordinates) and others informally (such as your peers and bosses). At the core of the course is characterisation and discussion of everyday functions and roles managers take part in, such as sensemaking, sense-giving, decision-making, leading, motivating, planning, organising, mentoring, monitoring and influencing. Each Unit in this course covers a topic that contributes to your better undertaking of these managerial roles so that you can become a better manager of yourself, others, teams and organisations. Removed Business Analytics Skills and competencies learned How it applies to work activities Business analytics enables organisations to make quicker, better and more intelligent decisions to create business value in the broadest sense - potentially the difference between survival and extinction in an increasingly competitive world. Evidence based decision-making supported by a data-driven culture is essential to the management of organisations. Removed Project Management Skills and competencies learned How it applies to work activities Project management involves the overall planning, control and coordination of a project. It is the process by which the responsibility for all phases is combined within one multidisciplinary function. This course introduces you to the project management skills needed during the lifetime of a project. It explores some key concepts of project management, including project risk management. Removed Enterprise Risk Management Skills and competencies learned How it applies to work activities This course considers external and internal drivers that can result in a range of compliance, operational, financial and strategic risks manifesting in organisations. Typical areas of impact examined will include finance, business operations, IT, innovation, crisis response and reputation. An organisation's culture can impact on the effectiveness of its risk management, which needs to be incorporated into all business planning and decision-making. Removed Strategic Consulting Project Skills and competencies learned How it applies to work activities We are facing increasingly complex problems that emerge in all aspects of our work and life in a VUCA (volatile, uncertain, complex and ambiguous) world. To thrive in today's business climate, integrative problem-solving skills are critical to every business leader and professional. This course provides you with the opportunity to develop and practise your problem-solving skills by integrating your knowledge, skills, experience and various tools you have acquired during your MBAX studies. Removed

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-20 | Income Tax Assessment Act 1936 section 82A

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. Taxation Ruling 98/ 9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (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). The deductibility of self-education expenses was also considered by the High Court in FCT v Maddalena 71 ATC 4161; (1971) 2 ATR 541. The High Court held that self-education expenses incurred to obtain new employment or to open up a new income-producing activity do not have a sufficient relationship with a taxpayer's current income-producing activities. They relate to future streams of income, rather than present streams of income, and so are incurred at a point too soon. In other significant court decisions such as Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478 at 497-498; (1958) 11 ATD 404 at 412, 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. 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). Paragraph 42 of TR 98/9 states: 42. 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. In Case Z42 92 ATC 381; AAT Case 8419 (1992) 24 ATR 1183, a senior newspaper journalist, whose duties involved interviewing people for feature articles and making presentations to potential advertisers, was allowed a deduction for the cost of a speech course because it was incurred in maintaining or increasing his ability in his current employment and therefore was necessarily incurred in carrying on that employment. Case U109 87 ATC 657 demonstrates the principle that just because expenditure may lead to the taxpayer being 'better' at their employment does not necessarily mean that the expenditure is deductible. In that case the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He incurred expenditure to undertake a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities and that the expenditure was not deductible. Paragraph 14 of TR 98/9 states: 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. In case FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557, Menzies J held that expenses incurred by a primary school teacher in relation to the submission of theses to gain a Teacher's Higher Certificate were allowable. His Honour considered that the certificate expenses were related to the actual gaining of income because possession of the certificate entitled Mr Hatchett to move to another pay scale and, therefore, to earn more money in the future. It also entitled him to be paid more for doing the same work without any change in grade (125 CLR at 498; 71 ATC at 4186; 2 ATR at 559). Furthermore, in case FC of T v. Studdert , Hill J said that an expense normally is allowable if it can be shown to contribute or be likely to contribute to increased income, but noted that such a finding is not a prerequisite for deductibility (91 ATC at 5013-5014; 22 ATR at 770). In your case, in determining whether a deduction is allowable for self-education expenses we have to examine the entire course as a whole in terms of the connection between the course and your income earning activities. If the course as a whole is considered to be relevant and incidental to your income earning activities, then the entire course would be deductible. You are currently self-employed earning your assessable income by X via X. You also X. The activities you undertake utilise skills and knowledge. We acknowledge that the learning outcomes, skills and competencies that some of the subjects impart and develop are applied in your current work activities. However, based on the information you provided about your work activities, the necessary connection between all subjects and your current work activities does not exist. There may be some minor connection, but the specific knowledge gained from some subjects are unrelated to your work duties. You can claim a deduction for study and self-education expenses if the course directly relates to your current work activities and results in or is likely to result in an increase in your income from your current work activities. However, you have not objectively shown this has or will occur as a result of undertaking the course. Subjects outlined in Group A have the necessary connection to your assessable income earning activities and are considered allowable deductions under section 8-1 of the ITAA 1997. The subjects outlined in Group B do not have the necessary connection with your income earning activities. They are considered only very generally related to your activities and the knowledge and skills imparted by these subjects are well beyond the requirements of your current income earning activities. Therefore, the subjects listed in Group B are not allowable deductions under section 8-1 of the ITAA 1997. | Detailed Reasoning - Calculating your deduction: You incur an outgoing at the time you owe a present money debt that you cannot escape. Paragraph 6 (a) of Taxation Ruling TR 97/7 states: a taxpayer need not actually have paid any money to have incurred an outgoing provided the taxpayer is definitively committed in the year of income. Accordingly, a loss or outgoing may be incurred within section 8-1 even though it remains unpaid, provided the taxpayer is 'completely subjected' to the loss or outgoing. That is, subject to the principles set out below, it is not sufficient if the liability is merely contingent or no more than pending, threatened or expected, no matter how certain it is in the year of income that the loss or outgoing will be incurred in the future. It must be a presently existing liability to pay a pecuniary sum; The census date for the fees of the allowable subjects would be the date you incurred the expense. You cannot claim a tax deduction for repayments you make (whether compulsory or voluntary) on your FEE-HELP loan as per section 26-20 of the ITAA 1997. The self-education expenses you can deduct may be subject to a reduction of up to $250 in accordance with section 82A of the Income Tax Assessment Act 1936. Paragraph 119 to 155 of TR 98/9 provides an explanation of how this provision operates. Also enter reference QC 61642 into the search function of www.ato.gov.au to help work out your claim.