Private ruling: Course fees
Published: March 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for the course fees? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1. Detailed reasoning | 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, or a provision of the ITAA 1997 prevents it. | A number of significant court decisions have determined that for an expense to be an allowable deduction: | · 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 ( Lunney's case )), | · 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), and | · 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 95/33 considers the issue of whether a deduction would be an allowable deduction by considering the subjective purpose, motive or intention in making the outgoing. 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, then the outgoing may not be deductible. | Generally, where a business pays expenses for training their staff in relevant areas and that training increases the assessable income of the business, a deduction is allowable. | In this case, Entity A will pay course fees for a person who is not an employee of Entity A. Although the person may do work for the business, the nexus between the expenses and the entity's assessable income is not sufficient. The purpose of paying such expenses is not considered to directly produce any assessable income for the business. Therefore a deduction for paying the fees is not allowable under section 8-1 of the ITAA 1997.


Relevant facts: Entity A operates a business. The entity is looking to expand the business. | Further skills and training are required to enable the progression and growth of the business. | You want a person to complete a course. The person does administration work for the business. The person is paid by another entity.