Private ruling: Self-education
Published: May 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for the cost of endorsement training? | 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 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 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. The leading case on the above principle is Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348. In that case, the High Court held that expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was deductible. All three judges recognised that the tour expenses were relevant to the activities by which the taxpayer was currently producing income. One of the judges, Windeyer J, stated (106 CLR at 70; 12 ATD at 352): a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling. 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. In Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557 a deduction for self-education expenses was allowed as the self-education course allowed the taxpayer to earn more in the future and entitled him to be paid more for doing the same work without promotion. At all times the taxpayer was employed by the same employer. However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to obtain new employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. The leading case on this issue is Federal Commissioner of Taxation v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 ( Maddalena ). In that case, Barwick CJ states (ATC at 4162; ATR at 548): The costs to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment. However, where the self-education is linked to obtaining new employment but also relates sufficiently to existing employment, a deduction may still be allowable. The Federal Court in FC of T v. M I Roberts 92 ATC 4787; (1992) 24 ATR 479 applied the principle in Maddalena when it overturned an AAT decision allowing a mine manager a deduction for expenses associated with a Master of Business Administration degree. Mr Roberts was retrenched by his employer in Australia and then undertook an MBA course in the US for two years. On his return to Australia, he was re-employed as a mine manager by another company at a significantly increased salary when compared with his previous position. You and your employer concur that your employment contract commenced in June 2013 and that the condition to obtain the endorsement was a condition precedent to the performance of your employment contract. The endorsement commenced in May 2013 and the expenses associated with the course were also incurred in May 2013. You were not employed by the second employer at the time you incurred the expenses. As such, they were incurred in obtaining new employment. Therefore, a deduction for the expenses you incurred in obtaining the endorsement is not allowable.

Relevant facts: You were employed by one employer until May 2013. | In April 2013, whilst still employed you received an offer of employment from another employer and commenced employment in June 2013. | You commenced the endorsement training in May 2013. | You paid the course fee in May 2013. | The offer of employment was conditional upon successful completion of the training and subject to criminal history and medical checks.