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

Ruling: Q1: Are you 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 or a provision of the taxation legislation excludes it. Taxation Ruling TR 98/9 deals with the deductibility of self-education expenses. Self-education expenses are deductible under section 8-1 of the ITAA 1997 where they have a relevant connection to the taxpayer's current income earning activities. 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, the self-education expenses are allowable as a deduction. In FC of T v Hatchett 71 ATC 4184, a teacher tried to claim a deduction for university fees. The teacher undertook the study in order to become a better teacher. In disallowing the deduction, Menzies J stated that: I am not able to find any connection between the payment of fees and the assessable income of the taxpayer beyond the circumstance, which I take to be self evident, that a teacher who has pursued university studies is likely to be a better teacher than if he had not done so and is therefore more likely to obtain a promotion within the department. In my opinion, this general consideration is not enough to make the fees deductible; there must be a perceived connection between the outgoing and the assessable income. This means that in order to be deductible, it is not enough that expenditure incurred will make you a better teacher or even that it is encouraged by your employer. The expenditure must be incurred in the course of earning your assessable income to be deductible. A similar conclusion was reached in FC of T v White 75 ATC 4018. This case was concerned with the travelling expenses incurred by a clerk in the course of pursuing his accountancy studies at night. It was established that the clerk's accountant employers expected him to study and had he not done so, he could not have been expected to maintain his position in the firm. However, it was not a condition of his employment, that he, undertake studies. Nor was there any agreement that completion of the course would lead to any promotion or salary increase. In disallowing the expenses, Helsham J stated that: expenses incurred in pursuing studies associated with employment will qualify as allowable deductions under section 51 when it can be said that those studies are part and parcel of the employment, which means that the expenditure is incurred in the process of carrying out the employee's duties, or, even if they are not such, they can be seen to have a direct effect on income. Where that cannot be seen, I think it will be difficult to establish the necessary connection between the study activity and the employment so as to give study expenses the character of outgoings incurred in gaining or producing the income derived from the employment. On that reasoning Helsham J found that, although the taxpayer in White's case might have been enabled to better carry out his duties and be better fitted for promotion as a result of his pursuing the accountancy course, the expenses of that course were not sufficiently related to the gaining of his assessable income to be claimed as allowable deductions. This was also the conclusion found in Case N4 81 ATC 32. A part time French teacher employed at a high school went on an overseas trip in which she spent 15 days in France. The teacher wished to claim the expenses incurred in France on the basis that she considered it necessary to update her linguistic skills, to hear and speak French in France and "to see and experience at first hand the areas and places, monuments, customs and so on, that I dealt with constantly in the class room". The taxpayer admitted that superficially what she did during this period would have differed very little from the activities of a tourist who happened to be in France, but she added that in her case it was a learning situation, involving the gaining of skills she was going to use later. In FC of T v. Finn (1961) 106 CLR 60 at 70; (1961) 12 ATD 348 at 352 ( Finn's Case) , Windeyer J stated: a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling. If a course of study, is too general in terms of the taxpayers current income earning activities, the necessary connection between the self-education expense and the income earning activity does not exist. In disallowing the claim the court distinguished her circumstances from the facts in Finn's case. Although, the travel should make her a better teacher, the expenditure was not incurred in the course of earning her assessable income. She was not requested to travel to France (as in Finn's case), her employer did not make any contributions towards the trip (as in Finn's case) and most importantly, she would not be promoted as a result of the trip (as in Finn's case). Promotion did not form a substantial motive for the travel as it did in Finn's case. In your case, it is considered that the link between the expenses you incur and the earning of your assessable income is too general in nature.

Relevant facts: You are employed on a contractual basis. | Your employment details differ, depending on your contract. | You incurred various expenses related to the general maintenance of skills you sometimes use in your employment, depending on your contract.