Amuthalan and Commissioner of Taxation
[2008] AATA 818
•15 September 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 818
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/1030
SMALL TAXATION CLAIMS DIVISION ) Re VIVEKANAND AMUTHALAN Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr Egon Fice, Member Date15 September 2008
PlaceMelbourne
Decision
The Tribunal affirms the decision under review.
(sgd) Egon Fice
Member
TAXATION – self-education expenses – necessarily incurred in gaining or producing assessable income – public ruling TR 98/9 – improve skill or knowledge required to perform work – likely to lead to increase in income
Taxation Administration Act 1953 (Cth) s 14ZZ, s 14ZZK, Part IVAAA, Division 358 in Schedule 1
Income Tax Assessment Act 1997 (Cth) s 8–1
Income Tax Assessment Act 1936 (Cth) s 51(1), s 82A(1)
Federal Commissioner of Taxation v Finn (1961) 106 CLR 60
Federal Commissioner of Taxation v Hatchett (1971) 125 CLR 494
Federal Commissioner of Taxation v Lacelles‑Smith (1978) 8 ATR 524
Federal Commissioner of Taxation v Smith (1978) 8 ATR 518
Lunney v Commissioner of Taxation of the Commonwealth of Australia; Hayley v Commissioner of Taxation of the Commonwealth of Australia (1958) 100 CLR 478
Re Tobias and Federal Commissioner of Taxation (1998) 38 ATR 1169
REASONS FOR DECISION
15 September 2008 Mr Egon Fice, Member 1. Mr Amuthalan is an Indian citizen who came to Australia in January 2006 to further his studies. Before coming to Australia, he had enrolled in the William Angliss Institute of Tertiary and Further Education (TAFE) to study for a Diploma of Hospitality Management in the Patisserie stream. Mr Amuthalan had previously completed a Bachelor of Hotel Management in India.
2. Mr Amuthalan’s course of study at the TAFE required him to complete a minimum of 1000 hours verified industry experience. He was required to gain this work experience in order to graduate. The TAFE informed Mr Amuthalan that he was permitted to work for a maximum of 20 hours per week during semesters and unlimited hours during vacation. Mr Amuthalan obtained part-time employment as a baker's assistant with a Baker's Delight franchise in Melbourne.
3. Mr Amuthalan lodged a tax return for the year ended June 2007 in which he claimed a deduction for self-education expenses, relating to his tuition fees payable to the TAFE, in the sum of $17,150. The Commissioner of Taxation (the Commissioner) disallowed the deduction in its entirety. The Commissioner issued Mr Amuthalan with an amended assessment in November 2007. In December 2007 Mr Amuthalan lodged an objection to the amended assessment and the Commissioner made a decision in February 2008, disallowing it in full. Mr Amuthalan now seeks a review of the Commissioner's objection decision pursuant to s 14ZZ of the Taxation Administration Act 1953 (TA Act).
4. The only issue before me is whether Mr Amuthalan's tuition fees for his course at the TAFE are outgoings that he incurred in gaining or producing his assessable income, as is required under s 8–1 of the Income Tax Assessment Act 1997 (1997 Assessment Act).
RELEVANT BACKGROUND
5. Mr Amuthalan enrolled in the Diploma of Hospitality course while he was resident in India. In a letter dated 4 November 2005 the TAFE informed Mr Amuthalan that he was required to complete a minimum of 1000 hours verified industry experience in order to graduate in the course he had selected. This was amended in February 2007 when the TAFE informed Mr Amuthalan that it no longer required industry work experience for his course. It nevertheless informed him that he could work for a maximum of 20 hours per week during semesters and unlimited hours during periods of vacation.
6. According to Mr Amuthalan, he was required to make a payment of $5,742, being tuition fees and an overseas student health cover fee for the first semester of 2006. In the second semester of 2006, his tuition fees were $5,400. His first semester fee in 2007 was $5,600 and the fee for the second semester of 2007 was $6,400.
7. His claimed a deduction for self-education expenses related to the fees he had incurred in the second semester of 2006 and both semesters of 2007. The claimed deduction was reduced by $250.00 in accordance with s 82A(1) of the Income Tax Assessment Act 1936 (1936 Assessment Act).
8. On 25 February 2008 Mr Amuthalan received the Commissioner's Notice of Decision on Objection, which disallowed his deduction claim. The Commissioner stated that there was insufficient connection between Mr Amuthalan's course of self- education and his current income earning activities.
9. Mr Amuthalan obtained employment as a Baker's Assistant with a Baker's Delight franchise in May 2006 and maintained that employment throughout the 2006–2007 financial year. His duties as a Baker’s Assistant were:
(a)production, processing and baking of bread and bread products (sweet and savoury);
(b)cleaning and maintenance of machinery and equipment; and
(c)stock taking, ordering and checking of stock.
LEGISLATIVE SCHEME
10. Division 8 of the 1997 Assessment Act provides for allowable general deductions. Section 8–1 provides:
8-1 General deductions
(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; or
(b)it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.
Note:Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.
(2)However, you cannot deduct a loss or outgoing under this section to the extent that:
(a)it is a loss or outgoing of capital, or of a capital nature; or
(b)it is a loss or outgoing of a private or domestic nature; or
(c)it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or
(d)a provision of this Act prevents you from deducting it.
(3)A loss or outgoing that you can deduct under this section is called a general deduction.
11. Deductions for expenses relating to self education are dealt with in s 82A of the 1936 Assessment Act. The relevant provision is set out in s 82A(1) which provides:
82A Deductions for expenses of self-education
(1)Where a deduction is, or but for this section would be, allowable to the taxpayer under section 8-1 of the Income Tax Assessment Act 1997 in respect of a year of income in respect of expenses of self-education, the deduction, or the aggregate of the deductions, so allowable to the taxpayer in respect of those expenses shall not be greater than the amount by which the net amount of expenses of self-education exceeds $250.
12. Mr Amuthalan bears the burden of proving that the decision made by the Commissioner regarding his self-education expenses has resulted in his tax assessment being excessive. This is set out in s 14ZZK of the TA Act which provides:
14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or
(ii)if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii)in any other case—the taxation decision concerned should not have been made or should have been made differently.
13. The Commissioner has also issued a Taxation Ruling (TR 98/9) relating to the deductibility of self-education expenses. That ruling states it was made for the purposes of Part IVAAA of the TA Act and is legally binding on the Commissioner. Although Part IVAAA was repealed following amendments which came into effect on 1 January 2006, the transitional provisions in the amending Act made it clear that a public ruling in force immediately before 1 January 2006 made under Part IVAAA of the TA Act had effect on and after that day, as if it were a public ruling made under Division 358 in Schedule 1 of the TA Act. TR 98/9 sets out the general principles of deductibility under s 8–1 of the 1997 Assessment Act. The general principles include:
(a)A deduction is allowable for self education expenses if the taxpayer's income‑earning activities are based on the exercise of a skill or some specific knowledge and the subject of self‑education enables the taxpayer to maintain or improve that skill or knowledge;…
(b)A deduction is allowable for self‑education expenses if the subject of self‑education leads to, or is likely to lead to, an increase in the taxpayer's income from current income‑earning activities;…
(c)Expenses are related to improving knowledge or skills and are not of a capital nature;…
(d)A deduction is not allowable for self‑education expenses if the subject of self‑education is designed to get employment, to obtain new employment or to open up a new income‑earning activity; and…
(e)The intentional purpose in incurring expense may be an element in determining whether the expense is allowable.…
NATURE OF SELF‑EDUCATION EXPENSES
14. It is fundamental to Mr Amuthalan's claim that his expenditure by way of tuition fees on the TAFE course will enable him to maintain or improve the skill or knowledge required for his current employment. That means the skill gained through his self‑education course must enhance or better equip him for the skill he is required to exercise as a Baker's Assistant.
15. The High Court in Lunney v Commissioner of Taxation of the Commonwealth of Australia; Hayley v Commissioner of Taxation of the Commonwealth of Australia (1958) 100 CLR 478 when dealing with fares paid by taxpayers for travelling between their homes and their places of employment or business and return, said, at 499:
But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.
The Court held that expenditure on fares were not deductible expenses under s 51(1) of the Assessment Act 1936, which used the same language as that used in s 8–1(a) of the 1997 Assessment Act.
16. Mr Elbourne, an advocate with the Legal Services Branch of the Australian Taxation Office, who appeared on behalf of the Commissioner, submitted that it is necessary to determine the sufficiency of connection between a particular outgoing and the means by which the taxpayer gains his or her assessable income. I agree with that submission. Where the expenditure enables the taxpayer to improve or maintain the skill or knowledge required to perform his or her work, such expenditure is allowed (Federal Commissioner of Taxation v Finn (1961) 106 CLR 60). Self‑education expenses have also been allowed as deductible expenses where the study objectively leads to, or is likely to lead to, an increase in the taxpayer's income from current income‑earning activities (Federal Commissioner of Taxation v Hatchett (1971) 125 CLR 494; Federal Commissioner of Taxation v Smith (1978) 8 ATR 518 and Federal Commissioner of Taxation v Lacelles‑Smith (1978) 8 ATR 524). In those cases, the taxpayer was able to demonstrate that the course of study for which the deduction was claimed would lead to the taxpayer either receiving an increased income in their current activity or would lead, quite probably, to a promotion and to an increase in assessable income.
17. The problem for Mr Amuthalan is that there is no obvious connection (for tax purposes) between his TAFE course and his work as a Baker's Assistant. In fact, as Mr Amuthalan conceded, he secured the work as a Baker's Assistant in order to comply with the verified industry experience necessary for him to graduate in his course. The course of education was not undertaken for the purpose of improving his skills or permitting him to obtain a promotion in his work as a Baker's Assistant, but rather, it was the other way around. The work was required to enable him to graduate. Therefore, it could not logically be argued that his TAFE course would in some way enable him to improve the skills required to work as a Baker's Assistant or that it might assist him in being promoted and thereby earning a greater income.
18. In fact, according to Mr Amuthalan, he had completed a Bachelor of Hotel Management in India. The Diploma course which he was undertaking at the TAFE was designed to supplement his Indian course. The TAFE's course guide describes the Diploma in Hospitality Management in the following way:
This qualification gives you a broad understanding of hospitality management, and also explores, in substantial depth, theoretical concepts relating to: business operations; hospitality budgeting; workplace diversity; legal knowledge for business; rostering staff; and hospitality service and quality.
19. I accept that the course in which Mr Amuthalan was enrolled at TAFE was a combined course including patisserie techniques. The TAFE's description of the patisserie part of the course describes it in the following way:
The Certificate IV in Hospitality (Patisserie) covers modern and traditional patisserie production techniques, operational management skills, and some basic cooking. You will learn highly creative artisan skills, such as sugar and chocolate decorative work, from the masters of the industry, who are teaching here at William Angliss Institute. Work placement is also offered as part of the course, to assist you in developing your skills to industry standards.
When you graduate, you could find yourself working as a Patissier in a leading hotel, restaurant, or boutique patisseries. You could even start your own business. Work placement will be offered as part of your course to develop your skills to industry standards.
20. It should be quite clear from the descriptions provided by the TAFE that the work experience in which Mr Amuthalan was involved was just that, work experience. His course of study was not designed to advance or progress his skills in that industry. In fact, it was the other way around. He was required to participate in some way in the hospitality industry to enable him to complete his TAFE course. There was no evidence that Mr Amuthalan was seeking to set up his own business in Australia or that he was seeking to advance the position that he held as a Baker's Assistant.
21. This matter is similar to the problem dealt with by Senior Member B H Pascoe in Re Tobias and Federal Commissioner of Taxation (1998) 38 ATR 1169. In that case, the taxpayer had enrolled in a five-semester hotel management course and the taxpayer had undertaken a practical placement at an approved resort. However, Senior Member Pascoe did not permit the taxpayer's claimed expenditure as being necessarily incurred, as it was clearly directed to the possibility of her gaining future employment in hotel management following the completion of the course. The completion of Mr Amuthalan’s course here in Australia is likely to advance the possibility that he will obtain employment in the hospitality industry in a management role. That might not necessarily be in Australia. It could be on his return to India. That of course has nothing to do with advancing his current employment position. It is not the same as self‑education leading to an increase in the taxpayer's income from current income‑earning activities, as was the situation in the Hatchett, Smith or Lacelles‑Smith cases. It follows I am not satisfied that Mr Amuthalan's expenditure by way of tuition fees paid to the TAFE can be regarded as expenditure incurred in gaining or producing his assessable income derived as a Baker's Assistant working for a Baker's Delight franchise.
CONCLUSION
22. The character of the expenditure incurred by Mr Amuthalan, for which he has claimed a deduction under the general rubric of self‑education expenses, was not incurred in gaining or producing his assessable income as is required under s 8–1 of the 1997 Assessment Act. It was expenditure of a private or domestic nature. Therefore, it is not an allowable deduction as he claimed in his 2007 income tax assessment. It follows that the Commissioner's objection decision made on 25 February 2008 was correct and must be affirmed.
I certify that the twenty-two [22] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr Egon Fice, Member(sgd) Mara Putnis
Clerk
Date of Hearing 8 July 2008
Date of Decision 15 September 2008
Advocate for the Applicant self-represented
Advocate for the Respondent Mr Aaron Elbourne
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