Private ruling: Self education expenses
Date of advice: 15 February 2017
Published: July 2017
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for the self-education expenses incurred in relation to your legal studies? | A1: Yes.

Relevant facts and circumstances: You commenced tertiary studies in an area of legal studies. You are currently employed in the legal field. You commenced your studies after you commenced employment in the legal field, to enable you to take on more responsibilities. You completed the courses successfully. The following tasks are descriptive of your duties. Your duties and responsibilities are more akin to a junior legal level and this is rewarded in a higher job classification and consequently a higher pay rate that other legal employees within the same department. Your studies are the primary reason for your ability to work at a higher level (i.e. a junior level) and being given more responsibility, which in turn has led to increased job classification and increased salary. As your studies have progressed, so too has the complexity of your duties/tasks and your level of responsibility. You have been encouraged by your employer to continue your studies with paid study leave. In the year in question, you exceeded expectations in your role and you were awarded a salary increase, as well as receiving a discretionary bonus for your work. This was only possible in your position because your knowledge and skills continued to increase as a direct result of the knowledge learned from your self-education. There are no qualifications necessary to obtain the position to which you are employed. There is a considerable overlap between your position and a junior person, especially when the person is engaging in legal studies to increase skills and knowledge so as to be able to work on more complex matters with more autonomy.

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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction. In addition, if 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 his or her current income-earning activities in the future, the self-education expenses are allowable as a deduction. However, the decision of the High Court in FC of T v. Maddalena 71 ATC 4161 ; (1971) 2 ATR 541 establishes the principle that no deduction is allowable for self-education expenses if the study is to enable the taxpayer to get employment, obtain new employment or to open up a new income-earning activity (whether in business or the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. Application to your circumstances You completed the legal studies for use in carrying on your related income earning activities. In your case, there is sufficient connection between the courses you completed and your income producing activities at the time. You undertook the program to enhance your existing capabilities, skills and knowledge that are required in the performance of your current employment. Consequently, the self-education expenses, including course fees, course and reference books and stationery, incurred in undertaking this program have the necessary and relevant connection with the earning of your assessable income and are deductable under section 8-1 of the ITAA 1997.