Deductions: self-education - personal development course

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

Yes. The taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 to the extent the expenditure incurred in attending the self-development course directly relates to their current income earning activities.

The taxpayer is employed in a senior management position and performs a leadership role in their organisation.

Their duties include the provision of policy advice on various topics in their field of expertise through the preparation of reports and the giving of presentations.

The taxpayer has enrolled in a personal development course.

The course concentrates on personal self-development; however modules on counselling/interviewing techniques, group facilitation/presentation skills and written communication skills are also included.

All twenty course modules have equal value as credit towards completion of the course and the fee for each module is the same.

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 the 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 Re Naglost and Commissioner of Taxation (Cth) [2001] AATA 1051; 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 it was 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 the 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, where an employer subsidises that study, though not decisive in itself, that fact will lend even greater weight to self-education expenditure having a nexus with income earning activities.

In this case, the course in question covers a range of skills and attributes, many of which cannot be directly related to the taxpayer's work. However, three subjects (counselling/interview techniques, group facilitation/presentation skills, and written communication skills) can be objectively viewed as directly relating to the taxpayer's employment duties.

The taxpayer has demonstrated that a sufficient nexus existed between the above three modules of the course and their current income earning activities. The cost of participation in the remainder of this program is a private expense. Therefore, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for the expenditure incurred in connection with the course but only to the extent that it relates to the three subjects that have a nexus with their employment. 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.

Date of amendment Part Comment 19 February 2016 Reason for Decision Updated legal references and for clarity.

Date of amendment | Part | Comment

19 February 2016 | Reason for Decision | Updated legal references and for clarity.