Private ruling: WRE - self-education
Published: August 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to claim a deduction for the tuition costs incurred in undertaking a Postgraduate Masters course at a University? | A1: No.

Relevant facts and circumstances: You commenced part time employment as an assistant. You commenced studying a Masters course at a University. You paid $X in course fees. As a result of the degree you were undertaking you were offered a promotion and you began working full time in a higher position.

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 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. The deductibility of self education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for the costs incurred in undertaking your Masters, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable 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 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). Similarly, 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, a deduction is allowable. However, no deduction is allowable for self-education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in 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. The issue of self-education expenses and casual employment was considered in Gupta v. FC of T 2002 ATC 2319 ( Gupta's case ) . In this case the taxpayer was an Indian citizen who arrived in Australia in July 1997 (then aged 19) on a student visa, with restricted work conditions. While in India, he attained a Certificate of Proficiency in Information systems and had worked as a trainee technical assistance with mainly data entry responsibilities. The taxpayer enrolled in the Bachelor of Computer Science course at the University of Western Sydney. From about March 1998, the taxpayer also began working on a casual basis at the university's School of Computing and Information Technology as a computer laboratory assistant. After completing his course he remained in the employ of the university as a tutor and researcher. The taxpayer sought deductions in the 1999 and 2000 tax years in relation to his self education expenses. The Commissioner claimed that the expenses were incurred to enable him to gain his degree and were not incurred in the process of earning his assessable income as a part time employee. The AAT held that the essential character of the expenses was to qualify the taxpayer so that he could get ahead within the IT industry to a more highly paid position. They found that on completion of the degree, however, the taxpayer would have acquired more highly developed skills, qualifying him to undertake more responsible and demanding work than previously. It was held that the expenses were not incurred in gaining or producing the taxpayer's assessable income from casual work at the university, that income was merely incidental to the studies. The expenses were incurred in getting future work, and they came at a point too soon. In your case, while you may have gained some additional knowledge relevant to your casual employment carried out while studying, it is considered that the employment was to support yourself while you undertook the study. The expenses you incurred for your Masters degree are considered to have been incurred in the pursuit of obtaining your qualifications and to obtain future employment within your field and not in gaining or producing your assessable income from the casual work you performed while studying. The income you earned from your casual work was merely incidental to your studies. Your Masters degree provides you with knowledge, skills and qualifications over and above those needed to perform the casual work you were undertaking. Therefore, it is considered that your self education expenses are not incurred in earning your assessable income. Rather, they are incurred to enable you to complete your Masters and to seek better work in your chosen field. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997.