Private ruling: Self-education expenses
Date of advice: 12 October 2016
Published: December 2016
Ruling period: Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20YY

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

Relevant facts and circumstances: You commenced employment with a company in 20XX. You submitted an application for a course of education in 20ZZ. You paid course fees in the 20YY-ZZ financial year. You ceased your employment prior to commencing the course of education.

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, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. Taxation Ruling TR 98/9 details the circumstances under which a deduction is allowable for self-education expenses. Self-education expenses are an allowable deduction if a taxpayer's income earning activities are based on the exercise of a skill or specific knowledge and the subject of the self-education enables the taxpayers to maintain or improve upon that skill or knowledge (paragraph 13 of TR 98/9). High Court decisions have indicated that expenditure must have the essential character of an outgoing incurred in gaining assessable income ( Lunney v FCT ; Hayley v FCT (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. The decision in FC of T v. Maddalena 71 ATC 4161; 2 ATR 541 supports the Commissioner's view that no deduction is allowable if the study is designed to enable a taxpayer to open up a new income earning activity, whether in business or in the taxpayer's current employment TR 98/9 considers the intention or purpose in incurring the expense may be an element in determining whether the expense is allowable. It states that: An expense is deductible under section 8-1 when the essential character is that of an income producing expense. The essential character is to be determined by an objective analysis of all the surrounding circumstances (see Fletcher & Ors (199 ) 173 CLR 1 at 17; 91 ATC 4950 at 4957 and 4958; (1991) 22 ATR 613 at 622). Application to your circumstances In your case, we accept that the course may have been related to your employment. However, given the timing of the expense we need to consider the surrounding circumstances to determine the essential character. We considered that objectively, at the time you incurred the expenses for the course of education you did not intend to maintain your employment. Therefore we do not accept that the expenses you have incurred have a relevant connection or nexus with the earning of your assessable income. Instead we consider these expenses have been incurred to open up a new income earning activity once you have completed the course. Therefore, you are not entitled to a deduction for the course fees under section 8-1 of the ITAA 1997.