ATO Interpretative Decision

ATO ID 2002/517 (Withdrawn)

Income Tax

• This ATO ID is withdrawn and replaced by Taxation Ruling TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual
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Issue

Is the taxpayer, an apprentice mechanic, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for self-education expenses in respect of a Heavy Vehicle Driver training course?

Decision

Yes. The taxpayer, an apprentice mechanic, is entitled to a deduction under section 8-1 of the ITAA 1997 (subject to the limitations imposed by section 82A of the Income Tax Assessment Act 1936 (ITAA 1936)) for self-education expenses in respect of the Heavy Vehicle Driver training course, as there is a clear relationship between the course and the taxpayer's existing duties.

Facts

The taxpayer is an apprentice mechanic who road tests heavy vehicles before and after repairs on the employer's premises.

Road testing is an essential part of the taxpayer's normal duties.

The taxpayer attended a Heavy Vehicle Driver training course and gained a Heavy Vehicle licence at their own expense.

The course was conducted by a Heavy Vehicle Driver training school.

The course has allowed the taxpayer to perform their duties more safely and with a higher level of skill.

The course may also give the taxpayer increased opportunity for pay increases and promotion.

Reasons for Decision

Section 8-1 of the 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.

The courts have considered the meaning of the term 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 56 ALR 785; (1949) 8 ATD 431 the High Court stated that:

'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.'

Taxation Ruling TR 98/9 discusses circumstances in which self-education expenses are allowable as a deduction. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

Paragraph 14 of TR 98/9 states that 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, the self-education expenses are allowable as a deduction.

In Studdert v. FC of T (1991) 33 FCR 75; (1991) 22 ATR 762; 91 ATC 5006 a qualified flight engineer undertook flying lessons in order to improve his ability to understand and interpret navigation data, identify navigation aids and monitor the pilots' actions. His efficiency was improved and his prospect for promotion was enhanced.

The Court found that the course better equipped the taxpayer to perform his duties and that there was a clear connection between the cost and the gaining of the taxpayer's income. In addition, it was found that the flying lessons would assist the taxpayer in promotion to higher grades in his current occupation and these factors were sufficient to support the conclusion that the expenditure was deductible.

The Heavy Vehicle Driver training course will clearly result in improved efficiency in the performance of the taxpayer's existing duties and enhance their income earning capacity. Thus, a clear connection can be found between the cost of the course and the gaining of the taxpayer's assessable income.

Self-education expenses that are allowable under section 8-1 of the ITAA 1997 and relate to a 'prescribed course of education', are limited in deductibility by subsection 82A(1) of the ITAA 1936 to the net amount of self-education expenses that exceeds $250.

A 'prescribed course of education' is defined in subsection 82A(2) of the ITAA 1936 to mean a course of education provided by a school, college, university or other place of education, and undertaken by the taxpayer for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade or in the course of any employment.

Paragraph 134 of TR 98/9 states that 'other place of education' is an institution or organisation, or a dedicated part of it, whose primary function is to provide systematic instruction, teaching or schooling in a subject, skill or competency.

The Heavy Vehicle Driver training school is considered to be an 'other place of education' for the purposes of section 82A of the ITAA 1936. Accordingly, the net self-education expenses allowable to the taxpayer under section 8-1 of the ITAA 1997 are limited to the excess over $250 of those expenses.

Amendment History

Year of income:  Year ended 30 June 1999

Legislative References:
Income Tax Assessment Act 1997
   section 8-1

Case References:
Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation
   (1949) 78 CLR 47
   [1949] HCA 15
   (1949) 56 ALR 785
   (1949) 8 ATD 431

Related Public Rulings (including Determinations)
Taxation Ruling TR 98/9

Keywords
Tuition expenses
Prescribed courses of education
Self education expenses
Truck drivers

Siebel/TDMS Reference Number:  CRS72503; 1-69YQCNY

Business Line:  Small Business/Individual Taxpayers

Date of publication:  31 May 2002

ISSN: 1445-2782