Issue
Whether interest expense on money borrowed to pay for a Graduate Diploma in Legal Practice is an allowable deduction under subsection 51(1) of Income Tax Assessment Act 1936.
Decision
No deduction is allowable for the interest expense incurred by the taxpayer in undertaking the Graduate Diploma in Legal Practice pursuant to subsection 51(1) of Income Tax Assessment Act 1936.
Facts
The taxpayer works part-time at a Law Firm as a para-legal, whilst studying law at an Australian University.
The taxpayer undertakes a further course of study, which will lead to a Graduate Diploma in Legal Practice. This course will qualify the taxpayer for admission as a solicitor.
The taxpayer argues that the Graduate Diploma course is directly related to their work as a paralegal, and the study will increase their qualifications from paralegal to solicitor.
The taxpayer finances the course through a bank loan and intends to pay the loan off in the income year, in which they commence employment.
Reasons For Decision
No deduction is allowable for self-education expenses pursuant to subsection 51(1) of Income Tax Assessment Act 1936 if the study, viewed objectively, is designed to enable a taxpayer to get employment or to obtain new employment. The expenses in this case are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income ( FCT v Maddalena 71 ATC 4161; (1971) 2 ATR 541 and Case Z1 92 ATC 101; 22 ATR 3549. Also see Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses.)
The taxpayer's current part-time position as a paralegal does not require qualification as a solicitor. The Graduate Diploma course will allow the taxpayer to obtain employment as a solicitor and thus enable the taxpayer to obtain new employment or open up a new income earning activity with the current employer.
As a result, no deduction is allowable for the expenditure incurred by the taxpayer in undertaking the Graduate Diploma pursuant to subsection 51(1) of Income Tax Assessment Act 1936 .
As the fees are an expense considered too remote to the gaining or producing of assessable income it is appropriate to also treat the borrowing, and the interest, as also being too remote. This view is consistent with that expressed in Taxation Ruling TR 98/9 where a deduction will not be allowed for interest incurred on a loan where there is not the necessary connection between the interest expense and the income earning activity in the year in which the interest is claimed.