Private ruling: Self-education expenses
Published: June 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are the entitled to a deduction for self-education expenses? | A1: No


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 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 taxpayers 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; (1961) 8 AITR 406). Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayers 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 taxpayers 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 ( FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, & 48 62 of TR 98/9 ( Maddalena )). The Federal Court in FC of T v. M I Roberts 92 ATC 4787; (1992) 24 ATR 479 ( Roberts case ) applied the principle in Maddalena when it overturned an Administrative Appeals Tribunal (AAT) decision allowing a mine manager a deduction for expenses associated with a Master of Business Administration degree. Mr Roberts was a qualified mining engineer who became a mine manager. He accepted a place at an American University to study full-time for an MBA and shortly thereafter he was retrenched, with his consent, by his employer. Before completing his studies Mr Roberts accepted an offer of employment from another mining company and, after graduating, started work as a mine manager at a significantly higher salary than he previously earned. Mr Roberts claimed deductions for self-education expenses while studying in the United States. The Commissioner disallowed the deductions and the taxpayer objected. The AAT held that there was a sufficient connection between the self-education expenses and Mr Roberts assessable income. The Commissioner appealed to the Federal Court, submitting that the expenses were not deductible for the following reasons: 1. the taxpayer was not in employment at the time the expenses were incurred and, accordingly, there was insufficient connection between the expenses and the gaining or producing of assessable income 2. they were prerequisite to the gaining of assessable income, and 3. they were private in nature. In overturning the AAT decision, Cooper J considered that the expenses were incurred for the purpose of obtaining new employment, albeit in a better position and at a higher salary, rather than in the course of earning the salary payable in the employment. Accordingly, the expenses were not deductible. Your case is very similar to Roberts case cited above in that at the time you undertook the courses you were not employed. Therefore, at the time, your studies were not undertaken to maintain or improve an existing skill or knowledge used in your current income earning activities. Nor can it be said that the subject of your studies objectively led to, or was likely to lead to, a future increase in your income from your current income-earning activities. Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 97 for self-education expenses.

Relevant facts: You undertook two courses. | These courses allowed you to gain higher qualifications and to meet the national standards. | Your employer did not provide you with any study leave. | You were forced to resign your position on both occasions to enable attendance for study purposes. | You were re-instated on your return from the course. | You received a pay increase when you were re-engaged and also changed duties after a period of probation. | You incurred accommodation costs of and the cost of airfares.