Ting vs Federal Commissioner of Taxation

In February 2015 the Administrative Appeals Tribunal (AAT) considered whether or not a high school teacher could deduct the upfront expenses of his postgraduate diploma in management from his taxable income.  The course included subjects like financial accounting and marketing.

Classes of 30 children require a lot of managing, but not enough to satisfy the Commissioner of the need to acquire management qualifications from the University of Melbourne's business school in order to produce assessable income.

Background

Mr Ting claimed $20,000 of self education deductions against $70,000 of income in his 2013 income tax return.  The expenses claimed were for six units undertaken at the University of Melbourne during the relevant financial period.

Following an audit, the ATO issued a notice of amended assessment to Mr Ting in respect of the 2013 year of income, disallowing the deduction in question, with accompanying administrative penalties for failing to take reasonable care .

The Law

Section 8-1 of the ITAA 1997 deals with deductible expenses:

"(1)  You can deduct from your assessable income any loss or outgoing to the extent that:

                     (a)  it is incurred in gaining or producing your assessable income"

The Case

Mr Alpins, deputy president of the AAT discussed the implications of case law dealing with the deductibility of self education expenses incurred in producing assessable income to eventually conclude that basic statutory requirements of s 8-1 should not be overlooked in favour reading about how case law interprets the section in any particular way.  Hence, the case turned on whether or not the expenses were deductible under the plain definition of the law.

The Decision

In the words of the deputy president, the expenses were not deductible under s 8-1 because the taxpayer's income earning activities did not "require skills in financial reporting, nor in marketing, or were they likely to increase his income".

The judge affirmed administrative penalties because the taxpayer had not sought appropriate advice when preparing the return.

A Lesson to Self Educators

The taxpayer's main downfall was claiming throughout most of the audit and objection process that he endeavored on obtaining a marketing degree because he aspired to be promoted to a senior teaching role at his place of employment in the future and one day to become a school principal.  The deputy president ruled that any deduction claim based solely on prospects of promotion could not be allowable on the basis that it does not assist a taxpayer producing assessable income, instead it assists him obtaining a different job in which income is produced differently to the job in which the taxpayer is claiming deductions against in that income year.

[2015] AATA 166

 http://www.austlii.edu.au/au/cases/cth/AATA/2015/166.html