Private ruling: Self-education expenses
Published: June 2013
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for self-education expenses you incur for undertaking your degree? | A1: No

Relevant facts and circumstances: You commenced fulltime employment for a state utilities fund after being seconded from a capital city utilities fund where you held another position. You have tertiary degrees. You have provided a list of your current duties. You intend to undertake another degree at a state university. You are undertaking the course to develop knowledge and skills on a number of different areas to build on your current skills including negotiations, writing and management and become involved in the governance arrangements of the business and protect the business. You have provided a list of the course subjects. The course will develop your current skills and knowledge to an advanced level and provide an in depth understanding of developing and managing as well as how to successfully negotiate through any disputes and how to protect the business interests. By completing your degree your employer envisages that although subject to the needs of the business at the time of completion of your degree, your role would be expanded and re-classified with the level of pay becoming commensurate with level of classification. You will incur course fees, text books, computer costs and internet expenses You will receive no allowances or reimbursement for your expenses from your employer as you have not spent the required minimum of two years with the fund. However your employer will provide flexible working hours to enable the study to occur as well as study leave prior to examinations and/or assignments. Your employer has encouraged you to undertake the course and has provided a letter of support on how the course directly relates to the tasks you undertake and how your position and studies would apply when the business seeks to become incorporated.

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 or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature. 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. A deduction is allowable for self-education expenses if a taxpayer's 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 taxpayer 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). Although you may gain knowledge and skills from the course that could be of some assistance in your work, the predominant focus of the course is for those wishing to become a fully qualified in your expertise. It is considered that there is an insufficient connection between the skills and knowledge required in your current duties and the course. Furthermore, it is considered that the study is designed to open up a new income earning activity. In FC of T v Hatchett (1971) 125 CLR 494; 71 ATC 484; (1971) 2 ATR 557, the judge held that expenses incurred by a primary school teacher in relation to the submission of theses to gain a Teacher's Higher Certificate were allowable. His Honour considered that the Certificate expenses were related to the actual gaining of income because possession of the Certificate entitled the taxpayer to move to another pay scale and, therefore, to earn him more money in the future. It also entitled him to be paid more for doing the same work without any change in grade. In your case, your employer envisaged that once you have successfully completed your degree and subject to the needs of the business, your position would be expanded and re-classified thus your pay level will become commensurate with the classification level. It could not be said that the studies you are undertaking will lead to an increase in income but your income may only increase should the business needs of your employer re-classify your position thus provide you an increase in your income. Consequently, the self-education expenses incurred in undertaking your degree do not have the necessary and relevant connection with the earning of your assessable income. Therefore, you are not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.