Private ruling: self-education expenses
Date of advice: 11 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for the full cost of your course? | A1: No. | Q2: Are you able to claim a deduction for the work related portion of the costs you have incurred to undertake some modules? | A2: Yes. | Q3: Are you able to claim a deduction for any portion of the costs you have incurred to undertake other modules? | A3: No.


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

Reasons for decision: Summary: Self-education expenses 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. The deductibility of self-education expenses fall for consideration under section 8-1 of the ITAA 1997. 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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business 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. However, TR 98/9 states that no deduction is allowable for self-education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income earning activity. 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. Entity A develops both personal and professional goals. To determine whether circumstances exist which would support the deduction for the course 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 your 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 aim of the course was to assist those who felt in need of motivation and purpose in life and to improve self-esteem. 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. It could not be said that the studies were part and parcel of the employment, or that they were incurred in the process of carrying out duties as an employee. Nor could it be seen that they would have a direct effect on the taxpayer's income. 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. Testimony from the taxpayer's superior officer stated that the course would enhance the taxpayer's ability to perform at a high level. The AAT held that the majority of the courses were relevant to the taxpayer's occupation, but that the course 'Wealth Mastery' was of a purely personal nature and thus not deductible. The AAT held that the majority of 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 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, thus are considered to be private in nature. The expenses are more correctly characterised as those which are necessary to put the taxpayer in a position to carry out the income earning activities. 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. It was held that there was insufficient connection with his occupation. 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 offered by the Church of Scientology. She claimed that the purpose of her study was to improve her selling 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. In Case H40 76 ATC 337, the taxpayer was employed by the Australian Government. He incurred fees for a Dale Carnegie course in Effective Speaking and Human Relations. The subjects covered fell into three broad groups, namely, instruction in speaking, instruction in methods of developing self-confidence and memory training. It was held that the qualifications offered by the course in effective speaking and human relations were too general. The instructions given in public speaking, in methods of developing self-confidence and in memory training were directed towards the enrichment of the taxpayer as a person rather than in enhancing his qualities as an employee. | Detailed Reasoning - Application to your circumstances: In your case you are doing a training course with entity A. It is considered that there is sufficient nexus between some of your self-education expenses and your income earning activities as a professional. However, some of the modules you studied are too general in nature and do not have a necessary connection with your assessable income. It follows that consideration must then be given to the individual modules you have done. It is accepted that half of the modules have a sufficient nexus to your income earning activities. The costs of doing these modules are an allowable deduction under section 8-1 of the ITAA 1997. In contrast, the remaining general based modules do not have the required connection with your profession and current income earning activities to be considered eligible self-education expenses. Although you may acquire some new skills and knowledge, it is not considered that the remaining modules are directly related to your current income earning activities as in Naglost. The modules help change personal values, attitudes and thoughts. Although the modules may expand your personal and professional influence, the modules are considered to be for self-improvement and personal development. While the modules may be of assistance to you as a professional, the expenses incurred in acquiring this knowledge and experience are not expenses incurred in gaining your assessable income. Furthermore, the benefits are largely personal and private in nature. Although improving your personal and communication skills may 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. We acknowledge that you may receive additional income however the nexus between the modules and the derivation of your assessable income is too remote. The modules focus on individual goals and dreams and are too general in terms of your income earning activities as a professional. The fact that you have gained skills that you can use in your profession is not enough to allow a deduction for the associated expenses. Accordingly, the expenses for the remaining modules are considered to be more related to your personal development which is considered to be private in nature. Even though the expenditure had a causal connection with the earning of your income, the modules do not have a close enough nexus to your income earning activities and are too general in terms of your current income earning activities. Therefore the expenses are not deductible under subsection 8-1 of the ITAA 1997.

Relevant facts: You are employed as a professional. You are responsible for operating your own section within the business. | You are not paid a retainer and earn income only on the basis of the income you generate. | You are responsible for all the administration and management of your clients. | You are undertaking a business coaching program. The program is provided by qualified professionals and can be done in workshops or as, one on one, consultations. | The coaching program covers multiple modules. | Entity A aims to get better results in your work and life. The mentor is an educator who helps you to reach and grasp your dream. | The course helps you to manage your clients more effectively, communicate and manage. The course helps you to generate additional income and be more effective in your profession.