Edited version of private advice

Authorisation Number: 1051938138370

Date of advice: 10 January 2022

Ruling

Subject: Self education expenses

Question

Are your self-education expenses you incurred undertaking the particular course deductible?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a teacher of a particular subject and tertiary preparation.

You have in teaching in these fields for over 20 years.

You have been with the same main employer for over 10years.

Their market was diminished with fewer students.

You undertook a two-week intensive course which is a requirement to teach in a particular type of college and with certain other education providers.

The course was indirectly relevant to part of your current employment however, you would not have undertaken the course for that employment.

The course was undertaken to enable you to teach at a particular type college that has the course as a prerequisite for employment.

You have not changed your employment since completing the course, although you did seek such other employment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary of decision

The self-education expenses you incurred as the expenses was incurred solely to enable you to take up another employment, albeit in the same field. Therefore the expenses are not deductible.

Detailed reasoning

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.

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. Self-education expenses are deductible where they have a relevant connection to the taxpayer's current income earning activities.

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 taxpayer's 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).

In a similar case Evans v. Federal Commissioner of Taxation (86 ATC 4901, (1986) 85 FLR 474, (1986) 18 ATR 80) the court made the following comments: Note: section 51 was the equivalent of the current section 8-1 of the ITAA 1997

'A deduction is allowable under sec. 51 although the income to which it is intended to lead may not be expected to be derived until a later year of tax. However, that section requires the outgoings to be incurred not merely with a view to the obtaining of income in the future, but ''in gaining or producing'' assessable income.

The correct approach, as reflected in Finn's case, is to identify the income earning activity of the taxpayer and then determine whether the outgoings were incurred in the course of that activity.

Although you may gain knowledge and skills from the course that could be of some assistance in your work, the predominant focus of the course is for those wishing to teach at a particular college. Indeed, the course is a prerequisite for being employed as a teacher in such a college or similar education

While there is some connection between the skills and knowledge required in your current duties and the course, the main purpose you undertook the course was to obtain a new employment.

Therefore, the study is designed to open up a new income earning activity.

In FC of T v Hatchett (1971) 125 CLR 494; 71 ATC 484; (1971) 2 ATR 557, the judge held that expenses incurred by a primary school teacher in relation to the submission of theses to gain a Teacher's Higher Certificate were allowable. His Honour considered that the Certificate expenses were related to the actual gaining of income because possession of the Certificate entitled the taxpayer to move to another pay scale and, therefore, to earn him more money in the future. It also entitled him to be paid more for doing the same work without any change in grade. In that case, the study related to the actual current employment; you are seeking to obtain another employment albeit in the teaching field.

Consequently, the self-education expenses incurred in undertaking the course do not have the necessary and relevant connection with the earning of your assessable income and are capital in nature as they open up the possibility of a new employment

Therefore, you are not entitled to a deduction for self-education expenses under section 8-1 of the ITAA 1997.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).