TAX TIP #36: | DEDUCTIBILITY OF SELF-EDUCATION EXPENSES

Facts

Individual A is a senior mechanical engineer in a global mining company.

She sought approval from her employer to apply for the master’s in business administration (MBA) course.

Individual A’s intention for undertaking the MBA course was to enhance her skills and knowledge that will assist her in her role as a senior mechanical engineer.

After completing the MBA course, Individual A received a promotion by her employer.

Question

Is Individual A entitled to a deduction for self-education expenses related to her MBA course?

Answer

Yes.

Tax Tip

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoing 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 earning exempt income.

Taxation Ruling TR 98/9 provides that self-education expenses are deductible under section 8-1 where they have a relevant connection to the taxpayer’s current income earning activities.

Self-education expenses have a relevant connection to current income earning activities if they:

1. enable the taxpayer to maintain or improve their skills or knowledge;

2. lead to or is likely to lead to, an increase in income from current income-earning activities;

3. are not of a capital nature;

4. have an essential character of an income producing expense.

Generally, self-education expenses are not allowable if they are incurred to get employment, obtain new employment or open up a new income-earning activity.

In the present case, Individual A’s role as a senior mechanical engineer required her to have a specific skillset and knowledge for her to effectively perform her role. The role requires not only sound technical ability but also strong leadership, financial acumen and project management skills.

Individual A’s intention for undertaking the MBA course was to enhance her skills and knowledge that will assist her in her role. Individual A receiving a promotion after completing the MBA course was made possible due to her increased skillset. The expenses are related to improving knowledge or skills and are not of a capital nature. Individual A did not undertake the MBA course to obtain new employment, but rather, to improve her skill in the course of employment with her current employer. There is no existence of any incidental private purpose or some other purpose.

Thus, there is relevant connection between the expenses related to the MBA course and Individual A’s income earning activities. If you would like to receive up to date tax tips directly to your email, subscribe below.

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