Private ruling: Deduction - self education expenses
Published: September 2011
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 for the cost of the tuition fees associated with your post graduate studies? | A1: No

Relevant facts and circumstances: You have previously worked overseas for multinational companies in marketing management roles. You state you have been unable to acquire a similar position in Australia as you do not have formal qualifications to secure the same position. You carried out contract employment for a number of years in roles similar to that you had undertaken overseas. You ceased the contract work and later commenced a Masters Degree in Marketing. You acquired full time employment in a sales role which you described as a junior role that enabled you to make time for your study. You provided a copy of your role profile. You have provided the following details in relation to your course of study. You provided details of the modules of study and subjects studied to date. You have stated the following in relation to your studies: It may be possible for you to obtain a role in marketing management without the masters qualification however you have not sought out these opportunities due to time constraints and working in junior roles enables you to make time for your study. Your current role may not be a management position however the activities require project management skills and the sales and marketing promotion management skills that are contained in the course would lead to natural progression of your current duties. This role will help you progress within the profession because it helps enhance your sales experience.

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

Reasons for decision: Detailed Reasoning - Self education expenses: Self-education expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). In order to obtain a deduction under section 8-1 of the ITAA 1997, you must show that the expenses were incurred in deriving assessable income and were not outgoings of a capital, private or domestic nature. The Commissioner's view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9. In accordance with paragraphs 13 and 14 of TR 98/9, expenses of self-education will satisfy the requirements of section 8-1 of the ITAA 1997 if: · a taxpayers income-earning activities are based on the exercise of a skill or some specific knowledge, and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge; or · the study of a subject of self-education objectively leads to, or is likely to lead to, an increase in a taxpayers income from their current income-earning activities in the future. However, as stated in paragraph 15 of TR 98/9, self-education expenses will not be deductible if the study is intended to: · enable a taxpayer to get employment, · enable you to obtain new employment, or · to open up a new income earning activity (whether in business or your current employment). In a recent Administrative Appeals Tribunal (AAT) case, Gupta v. Federal Commissioner of Taxation 2002 ATC 2319; (2002) 51 ATR 1205 ( Gupta's Case ), the taxpayer was enrolled in a Bachelor of Computer Science degree and worked on a casual basis in the university's School of Computing and Information Technology as a laboratory assistant, user support officer and demonstrator. The AAT found in Gupta's Case that, viewed objectively, the essential character of the course expenses was to enhance his knowledge in the IT field so that he could later obtain a more highly paid position. The AAT considered that Gupta did not enrol in the course to improve his proficiency as a casual employee in his positions with the School of Computing and Information Technology. Although the AAT acknowledged that the studies would have been of benefit to the taxpayer in his employment at the university it did not accept that the expenditure was incurred in gaining or producing that income. The income was merely incidental to the studies. Although the facts of Gupta's Case are not identical to yours, we consider that they are sufficiently similar so that it is appropriate to apply the principle of Gupta's Case to your situation. In your case, you have been employed in a sales role while undertaking the Masters Degree in Marketing. To perform your duties as in the role you are not required to hold the Masters Degree. The expenses in relation to the Masters course are not incurred in gaining or producing your assessable income from your current income earning activity in the sales role. It is noted that you described the role as a junior position that enabled you to make time for your study. The decision of the High Court in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 ( Maddalena's Case ) establishes the principle that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to get employment or to obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. TR 98/9, at paragraph 58 and 59, further discusses the principle established by Maddalena's Case : 58. We believe that Maddalena also supports our view that 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. In Case Z1 92 ATC 101; AAT Case 7541 (1991) 22 ATR 3549, a public service clerk studying for a law degree later obtained a legal officer position in the public service. Such expenses of self-education were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. 59. Example: Joseph is currently employed as a clerk in a public service department. He would like to transfer to a position in another section of the department and undertakes a course of study designed to equip him with the skills needed in that position. The study is unrelated to the skills required in his current position and is not likely to lead to an increase in income. As the study is designed to enable Joseph to enter a new income-earning activity, no deduction is allowable. It is considered whilst the knowledge gained from the Masters Degree is of assistance in your current occupation, obtaining this qualification would lead to you obtaining senior and management roles and open up new income earning opportunities. On the facts provided, it is not considered that the primary purpose of your studies is to enhance your current position nor would it lead to increased income in this occupation, rather, the studies would lead to new employment opportunities in the marketing profession. The decision in Maddalena's Case applies to your situation in that your course of education is to enable you to further your career prospects in more senior marketing and management positions. Your self-education expenses therefore have been incurred at a point too soon to be regarded as deductible expenses. Accordingly, you are not entitled to claim a deduction under section 8-1 of the ITAA 1997 for the costs you incurred in undertaking the Master of Marketing course.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'.