Deductions: Self Education Expenses - life coaching program

Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in relation to undertaking a 'life coaching' program?

No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for expenses incurred in relation to undertaking a 'life coaching' program, as there is insufficient nexus with their income earning activities and the expenditure is essentially private in character.

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 signed up for a life coaching program.

The coaching consists of one 45 minute telephone call per week, preceded by one hour of preparation for each call.

The coaching includes discussion on integrating work and lifestyle, prioritising actions and projects, personal planning, budgeting, and goal getting, time/resource management and career transition. The program also extends to discussing strategies on simplifying life and 12 step recovery programs.

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 87 ATC 616 ( Case U101 ) and Naglost v. FC of T [2001] AATA 1051; (2001) 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 coaching program aims to integrate the taxpayer's work and personal life. As such the focus of the program is much wider than simply on improving work related skills. While there may be some incidental improvement in the taxpayer's work skills, the main focus of the program is on general lifestyle improvement. This program, therefore, has the character of the courses referred to in paragraph 42 of TR 98/9.

The taxpayer has not demonstrated that a sufficient nexus exists between the coaching program and their current income earning activities. The cost of participation in this program is a private expense. Therefore, the taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for the expenditure incurred in connection with the life coaching program.