Private ruling: Self-education
Date of advice: 9 May 2016
Published: June 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for self-education expenses incurred in obtaining a pilot's licence? | A1: No.

Relevant facts and circumstances: You are a pilot who prior to completing the training in question, already held a commercial Pilots Licence (CPL). You have completed a related CPL conversion primarily to prepare yourself for your upcoming transfer. You had been flying large wing aircraft, before receiving your posting to fly a different winged aircraft. Since attaining the relevant licence you completed extra ratings and training to further your professional aviation knowledge. Assumption(s) None

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 Further issues for you to consider | Anti-avoidance rules | N/A

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 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. The decision in FC of T v. Maddalena 71 ATC 4161; 2 ATR 541 supports the Commissioner's view that no deduction is allowable 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. This would include studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. In your case your current duties are piloting and you have obtained another relevant licence. A similar situation was considered in Case U14 87 ATC 165. This case concerned two taxpayer's in a partnership that carried on a flying business that operated fixed wing aircraft. When the partnership's income began to decline, the partnership decided to branch out into flying helicopters. The partnership paid for one of the taxpayers to qualify as a helicopter pilot and claimed the cost as a deduction. Mr Roach (senior member) noted that it is a question of fact and degree, but considered in gaining a related licence, the applicant was acquiring new skills which had a different character to the skills required for flying fixed wing aircraft. Mr Roach held that the aircraft operations were to be a new profit yielding subject and the expense incurred to obtain a licence was not deductible. This reasoning can be applied to your circumstances. Your current income earning activities are based on your aeroplane flying skills. When you obtained your licence, you acquired a new and different skill rather than maintaining or improving your existing income earning skills or knowledge. The acquisition of a licence will not increase your income from your current income earning activities. As the expenses incurred are more properly characterised as expenses incurred for the purposes of carrying out new duties or opening up a new income earning activity, the expenses are considered to be incurred at a point too soon to be deductible. Your expenses are not sufficiently connected to your current income earning activities. Consequently, the expenses you incurred in obtaining your relevant aircraft licence are not deductible under section 8-1 of the ITAA 1997.