ATO Interpretative Decision

ATO ID 2003/84 (Withdrawn)

general

• This ATO ID is withdrawn and replaced by Taxation Ruling TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual
  This document has changed over time. View its history.

Issue

Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act (ITAA 1997) for expenses incurred in attending a personal development course?

Decision

Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for expenses incurred in attending a personal development course in the taxpayer's circumstances as it has a sufficient nexus with their current income-earning activities.

Facts

The taxpayer was recently promoted to a middle management position with their current employer.

The core duties of their employment were of a management nature and included the provision of written submissions, negotiation and liaison, facilitation and public speaking.

The taxpayer negotiated a learning and development plan with their employer. That plan provided in part that the taxpayer needed to develop some leadership and communication skills in order to be fully effective in carrying out their duties.

The taxpayer attended a personal development course. The course offered tuition in human psychology and motivation, change management, emotional intelligence, health, wellbeing and self-regulation, stress management, communication and assertiveness, conflict resolution and interpersonal skills and values, integrity and self-responsibility.

The taxpayer's attendance at the course was approved and subsidised by their employer.

In a later performance appraisal, the taxpayer's employer made an assessment that the course attendance had directly contributed to an improvement in the taxpayer's skills.

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. Taxation Ruling TR 98/9 discusses circumstances in which self-education expenses are allowable as a deduction under section 8-1 of the ITAA 1997. If a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

At paragraph 42, 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.

To determine whether circumstances exist which would support the deduction for a personal development 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 the taxpayer's income-earning activities.

In Case U101 [1987] AATA 155; 87 ATC 616 (Case U101) and Naglost v. FC of T [2001] AATA 1051; (2002) 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 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.

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.

The AAT held that the expenditure was allowable as objectively considered the course would improve the taxpayer's proficiency in his employment, in particular in relation to his management responsibilities. Therefore, any expenditure on the course would be relevant and incidental to the taxpayer's income-producing activities.

The tribunal also found that whilst the fact the RAAF assisted the taxpayer to pay their course fees was not determinative of itself it indicated that the RAAF regarded the course as relevant to the taxpayer's employment.

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. Furthermore, the fact that an employer subsidises the study, though not decisive in itself, will lend greater weight to the view that the self-education expenditure has a nexus with income-earning activities.

In the circumstances here the course assisted the taxpayer to maintain or improve some of the skills required in their employment and improved their performance of their current duties. In addition, the taxpayer's employer identified the taxpayer's skills gap and encouraged their participation in the course by agreeing to subsidise the cost of attendance.

The taxpayer has demonstrated that a sufficient nexus existed between the course of study and their current income-earning activities. Therefore, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for the expenditure incurred in connection with attending the course.

Note: Should the expenses incurred by the taxpayer meet the definition of 'expenses of self-education' in subsection 82A(2) of the Income Tax Assessment Act 1936 the deduction under section 8-1 of the ITAA 1997 will be limited to the excess of those expenses over $250.

Amendment History

Year of income:  Year ended 30 June 2001

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

Case References:
Case U101
   [1987] AATA 155
   87 ATC 616

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

Keywords
Deductions & expenses
Education courses
Education expenses
Employees
Self education expenses

Siebel/TDMS Reference Number:  CRS78548; 1-7P4SJOU

Business Line:  Small Business/Individual Taxpayers

Date of publication:  15 March 2003

ISSN: 1445-2782