1 Are you entitled to claim all of your self-education expenses incurred in pursuing a Juris Doctor in Law as deductions under section 8-1 of the Income Tax Assessment Act 1997 ?
No This ruling applies for the following periods : Year ended 30 June 20XX. Year ending 30 June 20XX. Year ending 30 June 20XX. The scheme commences on: 1 July 20XX
For approximately xx years you have worked as the Director of an accounting company (the Company). Your role in the Company is not limited to provisions of tax agent services and accounting. As a Director of the Company, you provide high quality advisory services on various business matters. Your skill set required to perform your job efficiently is a lot broader than that of a regular accountant/tax agent/ practice administrator. You aim not only to guide/mentor your clientele throughout the accounting/taxation process, but also to maximize the wealth of our clientele by providing advice on all facets of their financial/business affairs. By specializing in Small to Medium Entities and Individual clientele, you are able to provide advice within the client base and understand the client's needs down to the most meticulous detail. In the course of your work, the main activities you undertake are: • Consulting with clients on various taxation matters. • Dealing with business clients • Dealing with individual clients
• Preparation of BASs and income tax returns for various entities (individuals, partnerships, trusts, companies etc) • Mentoring junior staff • Interact with the ATO on matters like audits, private rulings, early engagement advice • Assist clients with objections and AAT matters: and • Provide advice to business clients regarding the structure of the business and various additional applications they need to make. You are enrolled in the Juris Doctor of Law (Juris Doctor). The Juris Doctor course consists of the following units: • Aust Legal Reasoning and methods • Principles Contract Law A • Principles Contract Law B • Principles of Equity • Principles of Trusts • Principles of Company • Principles of Criminal Law and Procedure • Principles of Public Law and Statutory Interpretation • Principles of Torts • Principles of Property Law • Principles of Constitutional Law
• Advanced Property Law • Principles of Evidence • Principles of Litigation and Dispute Resolution • Principles of Administrative Law • Ethics in Legal You have spent $XX,XXX in tuition fees. Other expenses incurred are the following: • costs of stationery and printing, and • textbooks. The Juris Doctor course will develop your current skills and knowledge in legal issues to an advanced level and provide an in depth understanding of developing and managing contracts as well as how to successfully negotiate through any disputes and how to protect the Company's interests. This will enable you to help represent your clients in courts and tribunals in taxation disputes. You have not applied for any government supports and the study is fully self- funded. As a registered accountant and a tax agent you have to study for at least 120 hours over a 3 year period developing as a professional. You have an email from the Institute of Public Accountants confirming that the Juris Doctor course fits within the study requirements of the accounting body.
In your email of March 20XX you referred to courses that in the Tax Practitioners Board view are essential for the tax agent to be completed which can be found at (https://www.tpb.gov.au/board-approved-courses-tax-agents). In your email, you provided commentary on the relevance of the units of study and your current income activities.
Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1936 section 82A
Summary You cannot claim all of your self-education expenses as deductions in respect of the Juris Doctor in Law as there is an insufficient connection between certain units of study and your role as Director of an accounting firm. However, you are entitled to a deduction for the self-education expenses to the extent that the units of study have the requisite connection with your current income earning activities. Detailed Reasoning Section 8-1 of the Income Tax Assessment Act 1997 (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 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) sets out when an employee can deduct a work expense under section 8-1 of the ITAA1997. The pivotal element of section 8-1 of the ITAA 1997 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'. Paragraph 22 of TR 2020/1 provides:
'...the requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income.' The High Court majority in Payne Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income. The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that:
'... to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income...' Taxation Ruling 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR98/9) discusses the circumstances under which self-education expenses are allowable as a deduction. Self-education expenses are deductible where: • the taxpayer's income-earning activities are based on the exercise of a skill or specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge, or • the study of the subject of self-education objectively leads to, or is likely to lead to, an increase in the taxpayers' income from their current income-earning activities in the future. No deduction is allowable for self-education expenses if the study is: • to enable the taxpayer to get employment • to obtain new employment, or
• to open up a new income-earning activity (whether in business or in the taxpayer's current employment). Several court cases have established the principles in determining the deductibility of self-education claims. In FC of T v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348, the High Court held that expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was allowable under section 8-1. All three Judges recognised that the tour expenses were relevant to the activities by which Mr Finn was currently producing income. Kitto J found that the tour was incidental to the proper execution of the duties of Mr Finn's office because: 'Its professional status implied an obligation of progressive acquaintance with a living and developing art. It was, therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add... to his knowledge and understanding of architectural achievements and trends overseas...'. Windeyer J was of a similar view, stating that:
'... a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling.' (106 CLR at 70; 12 ATD at 352). In FC of T v. Studdert 91 ATC 5006; (1991) 22 ATR 762 the taxpayer, a flight engineer, sought a deduction for expenses incurred on light aircraft flying lessons leading to a private pilot's licence. On appeal, Hill J found that the expenses were relevant and incidental to the activities as flight engineer that directly produced Mr Studdert's income. This finding was based on the facts that undertaking the lessons made him better equipped to perform his skilled job and better proficiency were a motivation for undertaking the lessons.
Paragraph 41 of TR 98/9 describes the example of Barry, a trainee accountant, who is studying commerce part-time at university. He is allowed a deduction for the costs associated with the course because the course enables Barry to maintain or increase the specific knowledge required in his current position and to carry out his duties more effectively. Paragraph 42 of TR 98/9 goes on to say that if a course of study is too general in terms of the taxpayer's income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist meaning that no deduction for self-education expenses would be allowable under section 8-1 of the ITAA 1997. In Case Z42 92 ATC 381; AAT Case 8419 (1992) 24 ATR 1183, a senior newspaper journalist, whose duties involved interviewing people for feature articles and making presentations to potential advertisers, was allowed a deduction for the cost of a speech course because it was incurred in maintaining or increasing his ability in his current employment and therefore was necessarily incurred in carrying on that employment. Case U109
87 ATC 657 demonstrates the principle that just because expenditure may lead to the taxpayer being 'better' at their employment does not necessarily mean that the expenditure is deductible. In that case the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He incurred expenditure to undertake a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip, he visited several volcanoes and other geological sites and attended a geological congress. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) concluded that the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities and that the expenditure was not deductible. Application to your circumstances
To determine whether circumstances exist which would support self-education deductions, it is necessary to determine whether there is a sufficient connection between the expenditure and your current income earning activities as a Director of an accounting firm. Whether such a connection exists is a question of fact and to be determined by reference to all the facts of the particular case. The Juris Doctor is a graduate entry law degree designed for non-law graduates. The course focuses on the knowledge, legal skills and professional ethics expected of legal practitioners and satisfies the academic requirements for admission to practice as an Australian lawyer. We accept that by its very nature, your role as Director of an accounting firm is not limited to the provision of tax agent services and accounting. As Director, you provide advisory services on various business matters including accounting, finance, and law. Therefore, we acknowledge that certain units of the Juris Doctor have the relevant connection with your current income earning activities.
We also accept that some of the focus areas of the Juris Doctor may broaden your knowledge of the principal areas of legal concepts and the wider perspectives of law and may make you a better Director. However, we consider that you have not objectively shown that there is a sufficient connection between all units of the Juris Doctor and your current income producing activities. Whilst we accept that a general link can be made, we do not consider that the Juris Doctor, in its entirety, form an integral part of your core responsibilities as a Director of an accounting firm. Having considered the facts and applying the current law to your circumstances, it has been determined the relevant connection has not been established between all of the units of Juris Doctor and your current role. Accordingly, we consider there is sufficient connection between your income producing activities and the following Juris Doctor units: • Aust Legal Reasoning and methods • Principles Contract Law A • Principles Contract Law B • Principles of Equity • Principles of Trusts
• Principles of Company Law • Property Law • Advanced Property Law • Private Investment Law However, we do not consider that there is a sufficient relationship between your current income earning activities and the following units of study: • Principles of Criminal Law and Procedures • Principles of Public Law and Statutory Interpretation • Principles of Tort • Principles of Constitutional Law • Principles of Evidence • Principles of Litigation and Dispute Resolution • Principles of Administration Law • Ethics in Legal Practice Other relevant comments Income Tax Assessment Act 1936 section 82A Under section 82A of Income Tax Assessment Act 1936 (ITAA 1936) the amount of self-education expenses allowable under section 8-1 must not be greater than the excess of the net amount of expenses of self-education over $250.
This means that if all your expenses of self-education are deductible under section 8-1 of the ITAA 1997, the maximum deduction allowable is $250 less than the total expenses incurred. Paragraph 120 of TR 98/9 explains that section 82A of the ITAA 1936 applies if: a) the expenses of self-education are necessarily incurred by the taxpayer for or in connection with a course of education provided by a school, college, university or other place of education; and b) the course is undertaken by the taxpayer for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade, or in the course of any employment. These expenses can include the cost of capital items such as computers, or the cost of car expenses worked out using the cents per kilometre rate. In your case, section 82A of the ITAA 1936 applies to you as you have incurred expenses, namely the fees of the units that directly relate to your current role and the units being part of a prescribed course of education provided by the University.
For further information please visit our website www.ato.gov.au and navigate to 'Education and Study' by entering the code QC16918 in the 'Search' field. Scroll down to the section 'Calculating your claim', to determine how much you can claim.