Private ruling: Self-education expenses
Date of advice: 1 June 2018
Published: August 2018
Ruling period: Year ended 30 June 201x
Date scheme commenced: 1 July 201x

Ruling: Q1: Are you entitled to a deduction for the cost of courses and the associated exams completed through Organisation A | A1: No | Q2: Are you entitled to a deduction for travel expenses incurred while travelling to complete exams? | A2: No | Q3: Are you entitled to a deduction for accommodation expenses incurred while travelling to complete exams to become a professional? | A3: No

Relevant facts and circumstances: You were employed with the Organisation B in State A from January 20XX to January 20XX. From January 20XX to January 20XX you were employed as a professional. You started professional training in January 201x and employed as a professional which is a trainee position. The training is governed by Organisation C and delivered by Organisation D. The training program is subsidised by the Australian Government and the trainees are not required to pay for the training, however, you were required to pay for the exam fees. The certificate received by completing the professional training will provide you with an upgrade to your qualification that will result in a pay rise and enable you to practice independently as a professional. Organisation A requires that you have a Completion of Training certificate before they will recognise you as a fully qualified specialist professional The exams for the course were held in City A which is approximately 250 km from where you were living. While in City A you stayed in 2 hotels from January 20XX to February 20XX. You did not receive reimbursement for any the costs.

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. 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, 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 (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541). To determine whether the expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and the current income-earning activities. Self-education courses are generally undertaken to further yourself in a position that you already hold. In your case you were not able to work independently as a professional at the time the expenses were incurred. In your case, the cost of gaining the necessary qualifications to enable you to practice as a professional in Australia was not incurred in doing work as professional. Rather, the successful completion of the exams to gain Organisation A registration will open up a new income earning activity, that of a fully registered professional in Australia. Such expenses provide a lasting benefit and are considered to be capital in nature. The expenses were incurred to obtain future income rather than gaining or producing your assessable income at that time. As such, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and are not deductible under section 8-1 of the ITAA 1997.