Private ruling: Self-education expenses (aircraft endorsement)
Date of advice: 5 March 2021
Published: April 2021
Ruling period: 1 July 2020 to 30 June 2021
Date scheme commenced: 1 July 2020

Ruling: Q1: Are you entitled to a deduction for the cost of the hire of an aircraft for the express purpose to maintain your flying skills and knowledge? | A1: Yes | Q2: Are you entitled to a deduction for the cost of the hire of a particular type of aircraft for the express purpose to maintain your flying skills and knowledge? | A2: Yes. | Q3: Are you entitled to a deduction for the hire of a particular type of aircraft for a particular endorsement? | A3: No.

Relevant facts and circumstances: You were employed in 2012. You have been stood down by the Employer due to the COVID pandemic and state border closures. You remain employed by the Employer. The Employer does not provide you with any allowances, reimbursements, time off, or other incentives to assist you in maintaining your licence and/or to assist you in undertaking further training. You are qualified to fly a jet airliner. The type of aircraft you will be hiring are: a) A light aircraft: Piston powered b) Another light aircraft: Piston powered c) Another light aircraft of a particular type: Turbo Prop You are required to maintain the currency of your pilots' licence to the extent that you: a) Conduct 3 take offs and landings every 90 days; b) Maintain instrument flight and flight proficiency; c) Maintain Short Take-off and Landing (STOL) proficiency and; d) Maintain psychomotor and cognitive skills in relation to flying aircraft. You have never piloted this particular type of aircraft before in a commercial capacity. You are undertaking this flying to ensure that you remain proficient in your psychomotor skills, and to ensure that your safety skills are enhanced particularly with regard to operations over certain terrain where your training would be useful in the unlikely event that you are forced to make an emergency landing. You do not intend to obtain a particular endorsement nor in any training or flying, count the flying time or instruction towards a obtaining a particular endorsement. Your intention is to solely to maintain your flying skills in the most effective and efficient manner affordable.

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

Reasons for decision: Summary: You are entitled to a deduction for the cost of the hire of a light aircraft for the purpose of maintaining your flying skills which are necessary to fulfil your duties as a pilot. However, you cannot claim for the cost of the hire of this particular type of aircraft to obtain a particular endorsement because the endorsement is a new qualification and incurred at a point too soon, meaning that the costs incurred by you for the seaplane endorsement are not deductible. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in order for an expense to be deductible, there must be a connection between the expense and the gaining or production of assessable income. However, you cannot deduct a loss or outgoing that is of a private or domestic nature. Taxation Ruling TR 95/19 (TR 95/19) describes the type of work-related deductions for airline industry employees, which also includes pilots and other flight crew. Paragraph 23 of TR 95/19 describes the most common types of expenses that are/are not deductible for airline industry employees. A deduction is allowable for the cost of renewing licences held by an airline employee in respect of his or her employment. A deduction is not allowable for the cost of obtaining the initial licence. | Detailed Reasoning - Application to your circumstances: Australian civil aviation law requires you to maintain recency requirements for your licence and any other flying qualification already held by you. This would include the maintenance of your psychomotor skills which are necessary to fulfil your duties as Pilot-in-Command for the Airline. There is a sufficient connection between your income producing activity as a pilot to your expenditure on the cost of the hiring of the aircraft that you would use for the express purpose to maintain your flying skills. Therefore, your expenditure on the aircraft for recency maintenance is allowable under section 8-1 of the ITAA 1997 and can be claimed as a work-related deduction. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in order for an expense to be deductible, there must be a connection between the expense and the gaining or production of assessable income. However, you cannot deduct a loss or outgoing that is of a private or domestic nature. 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, 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 (see Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, & 48 62 of TR 98/9). Studies undertaken in order to obtain employment in a new field are considered to have been incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and such expenses are not deductible. | Detailed Reasoning - Application to your circumstances: There is a connection between the cost of the training for your particular endorsement and your occupation as a fixed-wing pilot. We also accept that training for operations over certain terrain types would enhance and compliment your skills as a pilot and would be useful experience in the unlikely event that you are forced to make an emergency landing. However, this particular endorsement is not required in your occupation as a pilot of jet airliners for the Airline, and further the attainment of the endorsement will not lead you to have an increase in salary at the Airline. Because you have never flown this particular type of aircraft before, the endorsement is a new activity designed to open up a new income-earning activity, and in your case, this is to be able to fly this particular type of aircraft for income. Flying this particular type of aircraft is a new field for you, the training for the endorsement has been incurred at a point too soon meaning that all expenses incurred by you for the endorsement are not deductible under section 8-1 of the ITAA 1997.