Private ruling: Self-education expenses
Date of advice: 11 May 2016
Published: June 2016
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for your personal training expenses? | A1: No.

Relevant facts and circumstances: You work in a certain industry. Throughout the course of the year you have undertaken sessions run by a more experienced person in that industry. You have used some of the knowledge learnt when dealing with your client base.

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 is 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. The phrase 'necessarily incurred' does not mean that the expense was unavoidable or logically necessary. The expense must be clearly and appropriately adapted for the ends of the business. Where the expense is voluntary, the controlling factor is whether the expense can objectively be seen, to be appropriate to the business activity ( Magna Alloys & Research v. FC of T 80 ATC 4542; (1980)11 ATR 276). Taxation Ruling TR 95/33 discusses the relevance of the subjective purpose, motive or intention in determining the deductibility of an expense. The ruling states that an expense will generally be deductible if its essential character is that of expenditure sufficiently connected with the operations or activities which more directly gain or produce your assessable income. The essential character of an expense is a question of fact to be determined by reference to all the circumstances. It may be necessary to examine the taxpayer's subjective purpose where there is no obvious commercial connection with the business activity, or where the expense does not achieve its intended result. If an arrangement has an independent pursuit of some other objective, for example, to support a personal hobby, then the outgoing may not be deductible. A case with aspects similar to your situation where a predominately private activity is also used for business purposes is No 3 Board of Review Case H23 (Case H23) , 76 ATC 168, where the taxpayer was denied deductions for expenses incurred in maintaining and running his boat. The taxpayer claimed the boat was used solely for the entertainment of existing and prospective clients of his accounting business. However, the court determined at 76 ATC 168: the boat had not been acquired by the taxpayer for business purposes, but it had been used by him for such purposes as well as for private purposes. The court stated at 76 ATC 170: it seems that at the time when the boat was purchased, no consideration was given to the question of using it to entertain clients or prospective clients. At 76 ATC 170, N. Dempsey (Member) stated: It will be noted that primarily the taxpayer claims that he should be allowed the whole of the amounts claimed. To succeed in such a claim he must show that the boat was used solely in connection with his business and that it was not used at all for private purposes. Another case with similar aspects is Case U109 87 ATC 657. In this case, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook 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. He also visited some tourist attractions. 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 trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible. | Detailed Reasoning - Self-education: Taxation Ruling TR 98/9 states self-education expenses are allowable as a deduction 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. However, if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. | Detailed Reasoning - Fitness maintenance: Generally, expenses incurred in the maintenance of physical fitness and wellbeing are not deductible as they are private and domestic expenditure. Fitness related expenses are deductible where a taxpayer is required to maintain a very high level of fitness, well above the profession's general standard. Taxation Ruling TR 95/17 provides the Commissioner's view on work-related deductions of employees of the Australian Defence Force. TR 95/17 specifically deals with the issue of the deductibility of gymnasium fees in paragraphs 113 to 119. The Commissioner's view is that an infantryman in the Australian Defence Forces will be denied an expense incurred in attending a gymnasium, whereas, in contrast, a member of the Special Air Services Regiment (SAS) will be allowed a similar expense; the rationale being that the SAS member is paid to maintain a very high level of fitness. Another Taxation Ruling, TR 95/14 provides the Commissioner's view on allowances, reimbursements and work-related deductions for employee teachers. This Ruling advises at paragraph 113 that a deduction for expenses in keeping fit such as gym fees and aerobics class fees for employee teachers, including physical education teachers, is not allowable. | Detailed Reasoning - Your circumstances: In your case, undertaking the sessions does not demonstrate a sufficient connection between your participation and business activities. Your circumstances are considered similar to those in Case H23 and Case U109 and that your participation is recreational in character. While it is acknowledged that undertaking the sessions may lead to improving the information you provide to clients, the nature of the expenses is considered to be too general in nature for the expenses to be incurred in the course of gaining your assessable income. On the balance, we consider that the expenses incurred are private in nature and are not allowable as a self-education expense. Additionally, your expenses are incurred in order for you to maintain a level of fitness required in your employment, however this level of fitness cannot be considered to be as high as that required of a member of the SAS. Furthermore, your employment is comparable to that of a physical education teacher. Therefore, in accordance with the Commissioner's views in TR 95/17 and TR 95/14 as cited above, your expenditure is considered to be private or domestic in nature. In summary, the knowledge or skills that you will gain from them will be too general in nature for the expenses to be incurred in the course of gaining your assessable income and are essentially of a private or recreational nature. Consequently, the personal training expenses incurred are not an allowable deduction under section 8-1 of the ITAA 1997.