Private ruling: Self education expenses
Date of advice: 31 July 2015
Published: July 2015
Ruling period: Year ended 30 June 2015; and | Year ended 30 June 2016.
Date scheme commenced: 29 June 20YY

Ruling: Q1: Is the cost of completing a Graduate Diploma an allowable deduction under Section 8-1 of the Income Tax Assessment Act 1997 against your assessable income? | A1: No

Relevant facts and circumstances: You completed your degree in December 20XX . You are currently enrolled as a student in a Graduate Diploma at a university. This course commenced in June 20YY and will conclude in November or December 20YY. You currently work having commenced in January 20YY. This is a fulltime position but is only available for a period not exceeding one year. As a result of this condition, your appointment will cease by January 20ZZ. The conditions attached to this appointment require that a person must have completed a degree at the time of commencing duties. You have already arranged employment and upon completion of the current position in January 20ZZ, you will commence employment with the same employer. You have provided a copy of the terms and conditions of your employment with the business. This document notes that your employment will continue for an indefinite period, subject to: • Successful completion of your qualifying period being the first 6 months of your employment; • Successful completion of the employer's graduate program. This includes the successful completion of an in-house training course or equivalent; and • The general termination provisions set out elsewhere in the terms and conditions of employment. You have indicated that the Graduate Diploma is accepted by your future employer as an equivalent to the in-house training for the purpose of completing the graduate program. According to the terms and conditions of employment document, your employer may terminate your employment if you fail (for whatever reason) to complete the graduate program within the time prescribed. Successful completion of the graduate program also includes the acquisition and maintenance of a practising certificate.

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. Self-education expenses are deductible where they have a relevant connection to the taxpayer's current income earning activities. Paragraphs 13 and 14 of Tax Ruling TR 98/9 provide that self-education expenses 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 taxpayer's income from their current income-earning activities in the future. Therefore, where there is sufficient connection between your course of self-education and your current income earning activities, you are entitled to claim a deduction for your self-education expenses. 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). Taxation Ruling TR 98/9 provides the following example: Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist. In your case, you began performing duties after you completed your degree. The appointment was limited to no more than 12 months duration. Following the appointment you undertook a Graduate Diploma, a specialised course designed to enable individuals by developing the skills of people intending to become professionals. You will complete the Graduate Diploma shortly before you complete your duties. The Graduate Diploma is therefore considered to be a requirement in obtaining the necessary qualifications to work as a professional. The skills gained are not required to enable you to undertake your current position as evidenced by the fact that you commenced your Graduate Diploma some 5 months after obtaining the position, and you will complete the studies within a month of ceasing your appointment. Rather, the costs incurred in obtaining a Graduate Diploma are a prerequisite to allowing you to become a professional. In the circumstances, the expense of those studies is considered to have been incurred at a point too soon to be regarded as having been incurred in gaining your assessable income.