Private ruling: Self education expenses
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for expenses incurred for the study program? | 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). 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 ). Paragraph 42 of TR 98/9 states: If a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self education expense and the income earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances. The program you are studying provides personal development and business skills. To determine whether circumstances exist which would support the deduction for such a program 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 ), 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 Naglost 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 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 Mr Hatchett gained his income as a primary school teacher. It was not enough that Mr Hatchett's employer encouraged the taxpayer to undertake the course, nor that the course was likely to make Mr Hatchett 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, communication, 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. 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. The program focuses on personal development and business networking skills. By applying the principles as established in the above cases to your case, it is considered that the expenses of the program are not themselves directly attributable to the derivation of your assessable income as an employee. The people skills and motivational skills develop a personal asset that impacts on your working life. It is not a cost that can be directly connected to the derivation of your income. While the program may broaden your knowledge and skills and be of assistance to you in the performance of your income earning activities, 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 and leadership skills, yet expenses incurred in acquiring this knowledge and experience do not become expenses incurred in gaining your assessable income. The program including the CD material and recommended books can be used by various individuals to enhance their personal and interpersonal effectiveness and help people achieve their outcomes. Such benefits are largely personal and private in nature. As such, the course is considered to be a personal development course and too general in terms of your current income earning activities. It is considered that the skills obtained from the program are not unique to your current position and could also lead to an increase in efficiency in many other fields of employment. The fact that you have gained a number of skills that you can use in your employment is not enough to allow a deduction for the associated expenses. Even though a course may make a person a better employee and better able to carry out their duties, this is not sufficient to enable the expenditure to be allowed as a deduction. The program has the character of the courses referred to in paragraph 42 of TR 98/9. Although improving your customer relations and leadership skills and learning about organisational skills 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. Furthermore, the fact that you have received promotions is not a decisive factor. In your case, you commenced the program before you commenced work as a full time employee. You also advised that you are hoping to build a home based marketing business. It is considered that the program is directed at your future business income. Although the program may also assist in your current employment, it is considered that the decision in Maddalena's case applies to your situation. Your studies have been incurred at a point too soon. The necessary connection between the program expenses and your income earning activities is not sufficient. That is, the program does not have the 'essential character' of an income-producing expense. The link to your current duties or future business activities is too remote. Accordingly, the associated expenses are not deductible under subsection 8-1 of the ITAA 1997.

Relevant facts: You are currently employed full time as well as building a home based sales/marketing business. | You chose employment as a customer support position so as to align with the home based business. | You eventually intend to make your home based business to be your full time business. | You have subscribed to a continuing education program which includes training material, seminars and mentoring aimed at personal development, leadership skills, business acumen, motivational and customer support. | The program provides business training and mentoring which has trained many successful business owners and leaders. | You advised that the skills and knowledge you have gained from the training have been directly attributable to your advancement to a management position with related increase in salary. | The skills taught in the program are focused on people skills, customers and sales. | You have been involved with the program since mm/yyyy. It was instrumental in you initially getting work. It also gave you the edge in securing full time employment where you remained until mid yyyy. Continuing with the training, you learned skills that were invaluable in dealing with customers during that time. You also applied the skills learned in helping to train, mentor and motivate individuals at work. | The program is a self paced program aimed at continual incremental improvement and development as well as providing a continued motivational support. | You receive recommended books, CDs with specific focus on topics such as personality, motivational and leadership. | You also incur expenses for travelling and accommodation for seminars and conferences. | The program has provided you with leadership, management, organisational, customer relations, motivational and sales skills. | In mm/yyyy you received a promotion. | A few months later you were promoted with a further pay increase.