Private ruling: Self education
Date of advice: 19 September 2018
Published: October 2018
Ruling period: Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022
Date scheme commenced: 1 July 2018

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


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: It is considered that there is insufficient connection between your legal studies and your current income earning activities. Your studies are designed more for your future role rather than to enhance your current employment duties. Accordingly, the self-education expenses associated with undertaking the studies are not an allowable deduction. | Detailed Reasoning - Detailed reasoning: 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. A number of significant court decisions have determined that for an expense to be an allowable deduction: ● 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), and ● 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). Self education expenses are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities. 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. No deduction is allowable for self education expenses if the study is designed to enable the 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. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) ( Maddalena’s case ). Where a course is too general in relation to your current employment duties, the necessary connection between the expense and your income earning activity does not exist and no deduction is allowed. Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces their assessable income ( Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570. Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case. To determine whether circumstances exist which would support your deduction for the Graduate Certificate, and Masters Degree the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities. In Case R60 , 84 ATC 447 the Board of Review disallowed self-education expenses. The taxpayer was a public servant and the position required relevant experience or some legal training (which the taxpayer already had) but not legal qualifications as such. In the circumstances, the continuation of the taxpayer's legal studies could not be characterised as a relevant incident of or as part and parcel of his employment. While the legal studies were specified as an advantage for the position held and the taxpayer's legal training was relied on by the branch he was in, if the studies were discontinued, the branch would not have reacted at all. The branch head saw the encouragement given to the taxpayer as part and parcel of normal staff development. Case V132 88 ATC 842 concerning a librarian studying computing again confirms that it is not sufficient for a taxpayer to claim their studies will enable them to perform their duties more efficiently and enhance promotional prospects, where it is felt that the studies are not essential to their present duties and effectively open up a new field of employment. In Case Z1 22 ATR 3549; 92 ATC 101, a public service clerk studying for a law degree later obtained a legal officer position in the public service. The qualifications as a solicitor were not necessary for her current employment. The expenses were held to have been incurred in getting work as a legal officer not in doing work as an employee and therefore not deductible. At all times the taxpayer was employed in a position where such qualifications were not necessary although the gaining of such qualifications were encouraged. The course was pursued by the taxpayer of her own choice and for her own self improvement. Your situation is comparable to the above cases. You currently have skills and experience as a Customer Support Assistant. While some of the subjects provide knowledge and skill that are used in your role as a Customer Support Assistant, this role does not require qualifications in the subject chosen. The Graduate Certificate, and later the Masters, will provide you with qualifications that are far in excess of the requirements of your current position and cannot be said to be sufficiently related to your current employment duties. In your current position, you are not permitted to comment or provide advice, and this means that the qualifications you attain will not be able to be fully utilised as a Customer Support Assistant. In your case, although your employer has enabled your employment to accommodate your decision to further your education, such qualifications are not essential in your current employment. Although the course may have some benefit to you in your current work, that benefit is only incidental as your studies are providing you with knowledge and skill in a field you are not currently employed. Your legal and contract studies are designed more for your future role rather than to enhance your current income earning activities. It is considered that the decision in Maddalena’s case applies to your situation. Your studies will assist you to provide legal and commercial advice in the future for your employer and have been incurred at a point too soon. As highlighted above, where a course is undertaken to open up another source of income earning potential from the qualification, a deduction is not generally allowable. Your degree is regarded as a different income earning activity than that of a Customer Support Assistant. Your studies will give you new qualifications and enable you to obtain employment in a different field. The studies are regarded as not being sufficiently relevant to your present income-earning activities. Consequently, the self-education expenses incurred in undertaking the Graduate, and later the Masters degree do not have the necessary and relevant connection with the earning of your current assessable income. You are therefore not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.

Relevant facts: You are employed in the financial services industry. | You commenced studies in a Graduate Certificate. | Prior to commencing the course of study you changed from your current position. | You changed roles in order to further your education. | You had occupied a Manager position for over 8 months. | Discussions with your immediate manager concluded that your employer was not able to accommodate your decision to further your education while you held the Manager role. | The Support Assistant role is graded, with salary reflected on the grades. | The Manager managed the branch day to day operations which included customer service, compliance, team performance management, management of business performance, resolve customer complaints and risk management. | The role of the customer support assistant is predominantly customer service based. It is required that you have a wealth of knowledge with regards to the institution’s procedures. Your role requires you to move from one branch to another providing relief for annual leave. | Every branch will have a different client base and therefore, the requirements for the role will change significantly according to the demographic. Due to the recent Royal Commission into the relevant services industry, the question of consumer privacy and related services are becoming more important than ever. The frequency of customers coming through the branch questioning issues around their privacy as a consumer as well as issues relating to the financial services guidelines are becoming more common. Whilst as staff you are not allowed to comment or provide advice, it will make for an easier environment if you have legitimately acquired the knowledge of such matters. Obtaining the formal education will not only boost your personal confidence but also reduces the level of anxiety when faced with such questions. Currently, there are numerous occasions where ignorance of the matter does not facilitate a healthy interaction between yourself and the customers. | Core units of the Graduate certificate in have been stated in this Ruling. | The Graduate certificate will cover the core subjects required to complete the certificate. | Elective units are numerous, however depending on the subjects offered during each semester; your intention is to complete the subjects listed with this ruling. | You expect to complete your Graduate Certificate at the end of 2019. | Upon completion of this Graduate Certificate you will undertake more subjects to complete a Masters. You expect to complete the Masters at the end of 2021. | The main purpose of undertaking further studies is to gain a deeper appreciation of aspects of the relevant industry. | Upon graduation from the Graduate Certificate, and ultimately the Masters degree, the intention is to enhance your level of knowledge in your current role and strengthen your position in obtaining a higher grade and high salary within the same role. | Your current role requires the ability to interpret and adhere to the rules and regulations of the relevant services legislations and guidelines. | On completion of your study your short term intention is to increase and legitimize your knowledge on related services and consumer law in order to build confidence when resolving enquiries from customers. The potential is to maintain your current role, but move up to the next grading upon completion of the graduate certificate. You have not thought about your intentions when you complete the Masters, which is due for completion at the end of 2021. | The units you will be focussing on have been listed in this ruling.