Private ruling: Self-education expenses
Date of advice: 15 March 2019
Published: May 2019
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2018

Ruling: Q1: Are your self-education expenses deductible under section 8-1 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: You are employed full time as a Structural Engineer. As a structural engineer you are required to: ● Undertake analysis of structures using Finite Element Analysis (FEA) software and interpret the results for the design calculation phase ● Perform calculations for structural design using Australia Standards, International Standards, scientific literature and textbooks ● Manage the development of project structural deliverables including design specifications, reports, drawings and calculation packages; and ● Liaise with other engineering disciplines, clients and stakeholders. You commenced studying a Graduate Certificate and majored in Mathematics. The course is planned to be completed in 2 years. You are undertaking your Graduate Certificate in a part-time capacity, studying two subjects per semester (two semesters a year). You are currently enrolled in two subjects. You discussed undertaking the course with your line manager and received permission to change your full-time work week to a ‘flexible working arrangement’ of X hours a week. The working arrangement will allow you to attend your university classes for one full day a week by allowing you to work four days a week. Your employer also provides four additional days of annual leave for staff undertaking post graduate studies to assist with scheduling exams. You are not receiving ABSTUDY, Austudy or Youth Allowance. You have not received a taxable bond scholarship. You have not received an allowance nor have you been reimbursed by anyone for expenses incurred in relation to your studies. The position you hope to obtain after completing the Graduate Certificate majoring in Mathematics is a Technical Principal.

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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses circumstances in which self-education expenses are allowable. 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 objectively leads to, or is likely to lead to, an increase in a taxpayer's income from their current income-earning activities in the future, the self-education expenses are allowable as a deduction. Paragraphs 33 and 34 of TR 98/9 are particularly relevant: 33. The High Court of Australia has indicated that the expenditure 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; Hayley v. FC of T (1958) 100 CLR 478 at 497-498; (1958) 11 ATD 404 at 412). There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income ( Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; (1949) 8 ATD 431 at 435). 34. Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces his or her assessable income ( Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344 at 349-350; (1956) 11 ATD 147 at 148; (1956) 6 AITR 379 at 384; FC of T v. Cooper 91 ATC 4396 at 4403; (1991) 21 ATR 1616 at 1624; Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508 at 4521; (1993) 26 ATR 76 at 91). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case. However, no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayers current employment. Such expenses of self-education are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (see Federal Commissioner of Taxation v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161; and paragraphs 15, & 48 62 of TR 98/9). 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. To determine whether circumstances exist which would support your deduction for the Graduate Certificate 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 Structural Engineer. While some of the subjects may provide knowledge and skill that are used in your role as a Structural Engineer, this role does not require qualifications in the subject chosen. The Graduate Certificate 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 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 mathematics 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 enable you to obtain a new position as a Technical Principal 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 Graduate Certificate majoring in Mathematics will give you new qualifications and enable you to obtain new employment. 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 Certificate 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.