Private ruling: Self education
Published: July 2012
Ruling period: Year ended 30 June 2009
Date scheme commenced: 1 July 2008

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 or are necessarily incurred in carrying on a business for the purpose of 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. A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997: it must have the essential character of an outgoing incurred in gaining assessable income or, in other words of an income-producing expense ( Lunney v FC of T (1958) 100 CLR 478); there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL v FC of T (1949) 78 CLR 47) it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income ( Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 95 CLR 344; FC of T v Hatchett 71 ATC 4184 ( Hatchett's case ). 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). To determine whether circumstances exist which would support the deduction for a personal development course we must look to the 'essential character' of the expenditure. It is necessary to determine whether there is a sufficient nexus between the expenditure and the taxpayer's income-earning activities. In Case U101 87 ATC 616 ( Case U101 ) and Naglost v. FC of T (2001) 2002 ATC 2008; (2001) 49 ATR 1028 ( Naglost's case ), the Administrative Appeals Tribunal (AAT) considered the deductibility of expenditure on personal development courses. Case U101 concerned a taxpayer who was employed as a Taxation Office inspector. He undertook a course on communication, clear self-expression and work organisation. The course was not formally recommended or encouraged by his employer but the taxpayer considered it would assist him to carry out his work more efficiently. The AAT denied the claim and held that there was not a sufficient nexus between the expenditure in pursuing the course and the taxpayer's employment. Conversely, in Naglot's case the AAT allowed a partial deduction to a serving member of the Royal Australian Air Force (RAAF) who undertook a course of study at 'Mastery University'. The taxpayer's duties included management responsibilities and the course of study was designed to enhance leadership, management capabilities and decision-making processes. Further, the course was approved by the taxpayer's employer and some expenses were reimbursed by the RAAF. The AAT held that the expenditure was allowable as it was considered to be directly relevant to the applicant's role as a manager. The applicant had direct management responsibility for a group of 20 to 25 people and was responsible for the unit's physical training, plus occupational health and safety. Therefore, expenditure on the course was considered to be sufficiently relevant to the taxpayer's income producing activities. Naglost's case demonstrates that a personal development course will have the 'essential character' of an income-producing expense where a taxpayer can demonstrate a link, not only to skills and knowledge in general, but also to their current duties. In Hatchett's case , a primary school teacher was not allowed deductions for university fees incurred on an Arts degree course. The university fees had no connection with the activities by which the taxpayer gained his income as a primary school teacher. It was not enough that the employer encouraged the taxpayer to undertake the course, nor that the course was likely to make the taxpayer a better teacher in a general sense. Cases such as Case M10 (1961) TBRD 69 ( Case M10 ) and Case V13 88 ATC 163 ( Case V13 ) support the view that personal development courses which focus on motivation, personal and human relationship, public speaking, salesmanship and applied psychology are not considered to be incurred in earning the income from a taxpayer's occupation. These expenses are considered to be incurred in developing the taxpayer's personal capacity and experience, personality, self confidence and self expression, thus are considered to be private in nature. The expenses are more correctly characterised as those which are necessary to put the taxpayer in a position to carry out the income earning activities. In Case M10 , the taxpayer was an agent for a life assurance society. He was denied a deduction for the cost of a Dale Carnegie Course in which he received instruction and training on Effective Speaking, Leadership Training and Human Relations. The prospectus of the course states that the course consists of a combination of public speaking, salesmanship, human relations, personal development and applied psychology. In disallowing the deduction claimed, the member of the Tribunal commented that expenditure by a taxpayer upon development of his personality, self-confidence and self-expression can only be expenditure of a private nature whatever the ulterior purposes may otherwise be served. The course was in the nature of an advanced educational training for people in all walks of life and was private in nature and not allowable as a deduction under section 8-1 of the ITAA 1997. In Case V13 , the taxpayer was a life assurance sales woman. In an attempt to improve her selling skills the taxpayer undertook, at considerable expense, a series of courses in communication, personal development and business skills. The taxpayer's claims for the cost of the course and for depreciation of books were disallowed by the Commissioner and her appeal to the objection was further disallowed by the AAT. In disallowing the claim P M Roach (Senior Member) indicated that he accepted that her studies contributed to her personal development in ways that gave her a greater self-confidence and a greater art of communication and there-by gave her a greater capacity to persuade others to follow courses proposed by her. He stated that despite these contentions, the courses undertaken were principally directed to the personal development of the individual and of her capacities. The courses under consideration were conducted at that level and were so closely and deeply involved with the individual person that they must be characterised as private. By applying the principles as established in the above cases to your case, it is considered that the expenses of the courses undertaken are not themselves directly attributable to the derivation of your assessable income as a teacher and education support officer. While the studies may be of assistance to you in the performance of your employment duties, it is equally true to say that virtually any experience and the acquisition of any knowledge will contribute to the individuals own development with consequent benefit to the employment duties. There are many experiences which would help in improving relationships with other people, yet expenses incurred in acquiring this knowledge and experience do not become expenses incurred in gaining your assessable income. We acknowledge that the course may improve your confidence and interpersonal skills which can be used in your employment. However, the benefits are largely personal and private in nature. Although improving your personal characteristic may impact on your working life, it is not a cost that is sufficiently connected to your assessable income. Case V13 provides strong support for this view. The fact that you learn a number of techniques such as increased self-confidence and interpersonal skills lends weight to the argument that the course is designed to develop the individual as a person in their entirety. Accordingly, the expenses for the courses are considered to be more related to development of personal capacity which is considered to be private in nature. The course does not have a close enough nexus to your income earning activities and is therefore not deductible under subsection 8-1 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | You have undertaken two modules overseas for your professional development. | The course is described as being a general personal development nature. | The course was not set up as sessions with modules but helped with your confidence and interpersonal skills.