Individuals cannot currently claim a tax deduction under s 8-1 of the Income Tax Assessment Act 1997 for education and training expenses unless the expense leads to, or is likely to lead to, an increase in the individual’s income from current income-earning activities. The fact that study will enable an individual to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the individual’s current employment) is not a sufficient basis in itself for self-education expenses to be deductible. The recent case of Khan v Commissioner of Taxation (Taxation) [2021] AATA 367 (Khan) provides an example of this rule.
In Khan, the taxpayer was terminated from his employment with Emirates as an aircraft maintenance technician on 1 September 2016. Following a dispute resolution process, a “Release Agreement” was entered into on 4 November 2016 that defined the date of the ending of employment as 1 September 2016.
On 5 September 2016, the taxpayer enrolled in several training courses related to aircraft maintenance. The taxpayer submitted the costs related to these courses were expenses for self-education to gain or produce his assessable income and claimed a deduction under section 8-1.
The Commissioner denied this deduction.
The taxpayer applied to the Administrative Appeals Tribunal (AAT) for a review of the Commissioner’s decision. He said that the Release Agreement negated his termination and retrospectively reinstated him from 1 September 2016 to 4 November 2016. He said that at the time he incurred the expenses, he was employed and went on unpaid leave to attend the courses.
The AAT affirmed the Commissioner’s decision. It held that the taxpayer had incurred the costs of the courses to obtain employment with a new employer, and it was not connected with assessable income to be derived from his existing employment with Emirates. The AAT said that when the training courses were undertaken, the taxpayer’s employment with Emirates was clearly ending, with no prospect of continuation. Consequently, there could be no basis to expect that his employment with Emirates would benefit from the training. Further, the AAT said that the effect of the Release Agreement was to only change the basis of employment cessation and did not alter the date of cessation.
Khan presents the law as it currently stands. What happens in future may depend on the outcome of the consultation process the Commonwealth Treasury is undertaking on the deductibility of self-education expenses when self-education is not connected to current employment.
The Discussion Paper as part of that consultation process acknowledged with the changing labour market and the increased rate of globalisation and technological change, people may have multiple careers over their lifetime. A change to the deductibility of self-education expenses is being investigated as a mechanism to encourage retraining and reskilling. The consultation process has finished. Whether the results of that consultation are included in the next Commonwealth Budget is unknown.
For more information please contact:
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au
Eliza Millen
Graduate Lawyer
E emillen@sladen.com.au
