Private ruling: Course fees and travel expenses
Published: July 2013

Ruling: Q2: Are you entitled to a deduction for the associated travel and accommodation expenses in attending the course? | A1: No. This ruling applies for the following period Year ended 30 June 2012 The scheme commenced on 1 July 2011


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. A number of significant court decisions have determined that for an expense to be an allowable deduction: 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), and 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). Self education expenses such as course fees are generally deductible under section 8-1 of the ITAA 1997 where they have the necessary connection to your current income earning activities. 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 ( 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. No deduction is allowable for self education expenses if the study is designed to enable the 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. If the studies relate to a particular profession, occupation or field of employment in which you are not yet engaged, the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income (FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541) ( Maddalena's case ). To determine whether circumstances exist which would support your deduction for the course fees, 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. Case U186 , 87 ATC 1066 involved a solicitor who resigned from full-time employment with a firm of solicitors and went overseas to study for a master's degree. His employer gave him assurance that he would be welcome to renew his employment with them on his return. On his return to Australia, he resumed employment with the same firm. The Tribunal refused deductions for travel, study and living expenses associated with the overseas study. The expenses were incurred with a view to the future generation of income to arise from future income-earning activities; they were not incurred in the course of deriving any income during the period the expenses were incurred. The existence of a connection between an outgoing and future source of assessable income is not sufficient to satisfy the requirements of section 8-1 ITAA 1997. In your case, as no income was being derived while undertaking the course, it is considered that the course is directed at your future income. The increased knowledge may help you obtain more positions on your return to Australia. It is considered that the decision in Maddalena's case applies to your situation. Your studies will assist you to get future positions and have been incurred at a point too soon. Although you may work at entity A after the course, at the time of your studies, you were not earning assessable income. The necessary connection between the course expenses and your income earning activities does not exist. Therefore no deduction for the course fees or associated travel and accommodation expenses are allowable under section 8-1 ITAA 1997.

Question 1: Are you entitled to a deduction for your course fees? | Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | · the application for private ruling, | · previous private ruling, and | · additional information provided. | You are a member of a professional organisation. | You were employed as a professional for with entity A for more than six months. | You left this employment to work for numerous entities throughout Australia. | During the 2011-12 income year you had two other employers. You also worked in approximately eight short term positions as a sole trader. You registered for an ABN in June 2011. You derived sole trader income and salary and wages during the year. | You paid to attend an overseas course. The course was for three months. You also attended a four day course during this period. You were overseas for five months. | While undertaking the course you were not employed or engaged under any work contract. | You continued as a sole trader on your return to Australia.