Private ruling: Self-Education Expenses
Date of advice: 29 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for your self-education for the cost of aircraft training expenses? | A1: No. | Q2: Are you entitled to a deduction for the cost of aircraft training as work-related expenses? | A2: No.

Relevant facts and circumstances: You are employed part-time as an air traffic controller for a company. As an air traffic controller you are responsible for a vast range of duties as described in your letter. You are undertaking a recreational aircraft license course, private aircraft license course and a private instrument rating. You are not required to fly and/or operate aircraft for your current job. You are undertaking this course to gain a deeper understanding of the motives and actions of the pilots and their aircrafts. You are not receiving any allowances or reimbursements in relation to the course and your employer has not encouraged or endorsed you to undertake the course. You study in your own time and your employer does not give you any study leave.

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 or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature. 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 expenses ( 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 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; (1961) 8 AITR 406). Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to an increase in a taxpayer income from his or her current income earning activities in the future, a deduction is allowable. 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 ( FC of T v. Maddalena (1971) 45 ALJR 426; (1971) 2 ATR 541; 71 ATC 4161). You are incurring expenses for light aircraft training. For these expenses to be allowable they must have a direct connection with your current income earning activities. There have been many instances where the courts have considered the deductibility of expenditure specifically for flying lessons and pilot's licences. In the FC of T v Wilkinson 83 ATC 4018; (1983) 14 ATR 218 , the Supreme court held that expenditure by an air traffic controller on flying lessons was deductible as the lessons would enable the taxpayer to better fulfil his responsibilities as an air traffic controller and make it inherently likely that he would be promoted and receive a higher salary. Evidence had been given by the licensing supervisor of air traffic controllers that flying experience was taken into account when grading controllers and would lend weight to a selection for promotion. It was found that there was evidence to support the proposition that a qualification as an air pilot would better equip the taxpayer to fulfil his responsibilities as an air traffic controller. The taxpayer's evidence of the advantage that flying training gave him was supported by his senior officers. In contrast, Board No 2 in Case Q88 83 ATC 437; (1983) 27 CTBR (NS) 92 ( Case Q88 ) disallowed a similar claim by an air traffic controller. In the case before the Board the taxpayer's evidence of the advantage that flying training gave him was not supported by his senior officers in the same way as was the position in Wilkinson's case. The Board distinguished Wilkinson's case upon the differing attitudes of the senior officers and found that it was not possible to reach the conclusion that the expenses were incurred to better equip the taxpayer to undertake his duties as an air traffic controller. This was also the case in Case R108 84 ATC 721; (1984) 27 CTBR (NS) Case 166 that a taxpayer was denied a deduction for expenses incurred in gaining a flight instructor's rating because he failed to establish that the course was incidental to his duties as an air traffic controller (the position he occupied when undertaking the course). The expenditure was incurred too soon to be properly regarded as incurred in gaining or producing his income as a commercial pilot (the position he obtained subsequent to his undertaking the course). His motive was to open up a new income earning activity. Like Case Q88, your employer has not encouraged or supported you to undertake your recreational/private aircraft license course and unlike the Wilkinson's case, you have not shown that the possession of the license is incidental and relevant to earning your income. The expenses incurred in the obtaining the private aircraft license could be characterised as incurred for the purpose of obtaining a new position, or opening up a new income earning activity as in the Case 166 . It is considered that your training does not have the required connection to your current income-earning activities . The knowledge, skills and abilities gained from the training will assist you in opening up a new income earning activity and is not sufficiently connected to your current duties as an Aircraft Controller. The expenses are not being incurred in the course of gaining or producing your current assessable income. Consequently, no deduction is allowed for expenses incurred in doing your training under section 8-1 of the ITAA 1997.