Deductions Across Time: Preliminary, Post-Cessation, Interest and Self-Education
Timing matters in deductions. Expenditure may be too early, too late, or sufficiently connected despite a temporal gap. This chapter explains contemporaneity without turning it into a rigid rule.
What you should be able to do
- Distinguish preliminary expenditure from expenditure incurred in an existing income-earning activity.
- Apply Steele to pre-income interest and understand the factors in TR 2004/4.
- Analyse post-cessation expenditure.
- Recognise when capital-allowance or business-related-cost provisions may operate instead of s 8-1.
- Apply current self-education principles, including TR 2024/3 and the cases in the Week 9 required reading.
- Work through Romek's education, home office, travel and clothing expenses carefully.
Time is evidence of connection, not an automatic rule. An outgoing before income starts can sometimes qualify; an outgoing after income stops can sometimes qualify. The real question remains the statutory connection.
Key language
Issue → Rule → Authority → Application
8.1 Contemporaneity: when must the outgoing occur relative to the income?
Section 8-1 asks whether an outgoing is incurred “in gaining or producing” assessable income or “in carrying on” a business for that purpose. Those words create a temporal dimension. An expense may be commercially sensible and ultimately lead to income, yet still be too preliminary, too remote or incurred after the income-producing activity has ceased.
Amalgamated Zinc (de Bavay's) Ltd v FCT is a classic authority for the idea that “in gaining or producing” means in the course of the income-producing activity. The problem is therefore not whether the expense has some future relationship with income, but whether the statutory connection exists at the time and in the circumstances in which the expense is incurred.
8.2 Preliminary expenditure: getting ready to earn is not always earning
Expenditure incurred before a business begins is commonly non-deductible under s 8-1 because it is preliminary to carrying on the business and/or capital in character. FCT v Maddalena gives the personal-exertion equivalent: costs of obtaining a new income-earning position are generally incurred too soon. The taxpayer is preparing to enter the activity rather than incurring the outgoing in the course of an existing activity.
Softwood Pulp & Paper Ltd v FCT is important for business feasibility and establishment expenditure. Modern legislation can provide specific relief even where s 8-1 fails. The Forum directs attention to Subdiv 40-I and provisions such as ss 40-830/40-832/40-835/40-840/40-855, and to s 40-880 for certain business-related capital expenditure. This is why a good answer never stops after concluding “capital” or “preliminary”: search for a specific deduction.
8.3 Steele: contemporaneity is relevant, not absolute
Steele v DFCT is the leading High Court authority softening an overly rigid timing rule. Interest incurred before assessable income begins can still be deductible where the borrowing is directed to acquiring or developing an income-producing asset and the connection with future income remains sufficiently strong.
The case confirms several important propositions: the purpose of borrowing is generally identified by the use of the borrowed funds; interest on borrowed money used to acquire an income-producing asset is ordinarily revenue rather than capital; and the security for the loan is not decisive. FCT v Munro supports the proposition that the use of borrowed funds, not the asset given as security, is critical.
TR 2004/4 distils the Commissioner's view of Steele. Interest before income begins can remain deductible where it is not incurred too soon, is not private, the pre-income period is not so long that nexus is lost, the expenditure is directed to producing assessable income and continuing efforts are made toward that end.
8.4 Post-cessation expenditure
The mirror problem arises after a business or income-producing activity ends. Later expenses are not automatically non-deductible merely because the activity has ceased. The question is whether the occasion of the outgoing is found in the earlier income-producing activity.
Placer Pacific Management Pty Ltd v FCT is a key authority for later expenditure connected with earlier business operations. Brown v FCT likewise assists with post-cessation interest in appropriate circumstances. The analytical question remains nexus: has the connection to the former income-producing activity been preserved, or has a new private or capital purpose intervened?
8.5 Self-education revisited: the current-income/new-qualification boundary
Self-education is one of the clearest applications of contemporaneity. FCT v Finn supports deductions for education that maintains or improves skills used in current employment. FCT v Hatchett similarly recognises a sufficient nexus where study directly advances existing teaching duties and prospects. FCT v Studdert and FCT v MI Roberts add factual examples of the connection between study and existing employment.
Maddalena marks the other side: expenditure directed toward obtaining new employment or qualifying for a new profession is preliminary. TR 2024/3 is the modern ATO ruling students should read alongside the cases. Its core approach is factual: identify current duties, course content, objective purpose and whether the education leads to a new income-earning activity or qualification.
8.6 A law degree, PLT and the initial professional qualification problem
The Romek tutorial asks a question highly relevant to law students: can a paralegal deduct the costs of a JD because the degree improves legal knowledge used at work? The course's required reading answers cautiously. A law degree is not merely in-house training; it forms part of the academic pathway to admission as a lawyer. Where the objective character of the degree is obtaining the taxpayer's initial professional qualification, the Commissioner's likely view is that the expenditure is not deductible under s 8-1 even if some subjects overlap with current paralegal tasks.
That conclusion must not be generalised into “law degrees are never deductible”. The authorities show the importance of individual facts. Ting v FCT and TR 2024/3 paras 81–85/Example 21 raise the possibility that particular components can sometimes be separately characterised. Tribunal cases such as YDXM v FCT, Assefa v FCT, NT91/37 v FCT and Masters v FCT demonstrate differing outcomes. Tribunal decisions are persuasive rather than binding in the same sense as superior-court authority, and their facts must be compared carefully.
Section 26-20 ITAA97 separately denies deductions for HELP/FEE-HELP repayments. This is a statutory denial and must be distinguished from the s 8-1 question concerning underlying tuition fees.
8.7 Short professional courses
Romek's Legal Technology and AI Governance course is analytically different from the JD. The course may improve electronic discovery and document-automation skills already used in his commercial-litigation work. That creates a strong current-employment nexus. His additional hope of moving into technology law is relevant but does not automatically destroy deductibility. Analyse objective course content, current duties and the relative significance of existing-income and future-career purposes.
8.8 Home office and mixed study/work use
Romek uses a dedicated room 60% for employment and 40% for university study. This forces separate questions. To the extent the university study is non-deductible because it leads to initial qualification, costs attributable to that use do not become deductible merely because the same room is also used for employment. Employment-related running costs can be apportioned if the nexus is established. Occupancy expenses such as rent require the home-office principles considered in Chapter 7.
8.9 Travel, reimbursements and bulky documents
Romek's travel examples are designed to teach characterisation:
- ordinary tram fares home-to-office are generally private under Lunney;
- using Uber because of injury or night-time safety does not usually change the underlying private character of home travel;
- transporting genuinely bulky work documents can alter the occasion of travel where the transport of the items is an essential employment requirement;
- travel directly from one income-earning activity to another can have a stronger deduction nexus than travel home in between;
- a reimbursement from the employer requires separate income/deduction analysis and attention to whether the employee has ultimately borne the expense.
8.10 Clothing and work accessories
The Armani suit, white shirts, shoes and ties are conventional clothing. Even exclusive work use generally does not remove their private character. Dry-cleaning follows the deductibility of the underlying clothing unless a specific rule applies. By contrast, the document wallet designed for confidential court materials is not conventional clothing; it may be a work tool or depreciating asset, requiring its own analysis.
8.11 Private rulings as risk management
The Week 9 required reading makes an important professional-practice point. Where the deductibility of education expenses is genuinely fact-sensitive, a taxpayer can seek a private ruling from the ATO. Advising a client about the availability and effect of a ruling is part of competent tax practice. Later chapters explain Div 359 TAA53 Sch 1 and the protection available where a ruling binds the Commissioner.
8.12 Case hierarchy and how to use ATO rulings
TR 2024/3 is an ATO public ruling, not a judicial precedent. It can bind the Commissioner in relevant circumstances, but examples in a ruling are illustrations, not conclusive precedents for all factually similar taxpayers. The course quotes YDXM v FCT for this point and returns to Dixon CJ's observation in Finn that the result often depends on the facts of the particular case.
A high-quality student therefore distinguishes: statute → binding court authority → persuasive tribunal decisions → ATO rulings/guidance. Do not present all sources as equal.
8.13 Core authority map
| Authority | Principle | Use |
|---|---|---|
| Amalgamated Zinc | Outgoing must be incurred in the course of gaining/producing income. | Temporal connection. |
| Maddalena | Costs of obtaining a new income-earning position are preliminary. | Initial qualification/job seeking. |
| Softwood Pulp | Pre-business/feasibility expenditure can fail s 8-1. | Then check Div 40/s 40-880. |
| Steele; TR 2004/4 | Pre-income interest may be deductible where nexus remains strong. | Land/property development and pre-rental periods. |
| Munro | Use of borrowed funds matters; security does not determine interest deductibility. | Tracing borrowing purpose. |
| Placer Pacific; Brown | Post-cessation expenses can remain deductible where occasion lies in former activity. | Later liabilities/interest. |
| Finn; Hatchett; TR 2024/3 | Education connected with current duties may be deductible. | Skill maintenance/improvement. |
| YDXM; Masters; Ting | Fact-sensitive education decisions; tribunal hierarchy matters. | JD/degree subject analysis. |
8.14 Tutorial masterclass — Romek
Romek's problem should be answered by categories, not by listing receipts and expenses in the order presented. A strong structure is: (1) JD/FEE-HELP; (2) short professional course; (3) home-office running/occupancy expenses; (4) travel; (5) clothing and work accessories. For each category, state s 8-1, the closest authority, application and any specific denial.
The better view in the supplied course materials is that Romek's JD tuition is unlikely to be deductible because the degree is directed to initial professional qualification for admission. A subject-by-subject argument is possible only if supported by strong facts and should be described as fact-sensitive rather than treated as certain. The voluntary FEE-HELP repayment is denied by s 26-20.
8.15 HD IRAC method
I — Issue
For each expense, identify the present income-producing activity and whether the outgoing is incurred in that activity, preliminary to a new activity, private/domestic or capital.
R — Rule
Use s 8-1 positive/negative limbs, then the specific case/ruling. Add s 26-20 or a specific deduction where relevant.
A — Application
Compare course content to current duties. For travel, identify endpoints and purpose. For home office, distinguish running from occupancy. For clothing, analyse essential character rather than exclusive work use.
C — Conclusion
Give a separate conclusion and deductible amount/proportion for each category. Where uncertainty remains, identify the private-ruling option.
8.16 Plain-English summary
Timing matters because s 8-1 asks whether an outgoing occurs in the income-producing activity. Some expenses happen too early; some later expenses remain connected. Self-education is the same problem in another form: are you improving the job you already have, or paying to qualify for a new one? Ask that question before doing any calculation.
Deep Teaching Commentary — Learn the Doctrine, Then Learn How to Use It
Contemporaneity is about the temporal relationship between expenditure and the income-earning activity. The words “in gaining or producing” do not create an absolute rule that income must already be flowing on the day the expense is incurred. Instead, timing helps reveal whether the outgoing is part of the income-producing process, preliminary to it, or a residual consequence of a former activity.
Preliminary expenditure often fails because it is incurred to put the taxpayer in a position to earn income rather than in the course of earning it. But Steele demonstrates that sufficiently committed income-producing activity can exist before actual receipts commence. Post-cessation expenditure can also remain deductible if the liability retains the necessary connection with the former income-producing operations.
The matching tutorial uses self-education, home office, travel and work accessories to force careful application. The supplied Week 9 required reading, including TR 2024/3, is important because self-education depends on the taxpayer’s existing duties and the content/purpose of the study, not on broad claims that education “helps a career”.
Provision-by-provision teaching guide
| Provision / regime | What it does | How to use it in a university answer |
|---|---|---|
| ITAA97 s 8-1 | Contemporaneity is an aspect of the statutory nexus under both positive limbs, not a free-standing deduction rule. | Use timing evidence to explain whether the outgoing occurs in the income-producing activity. |
| ITAA97 Subdiv 40-I and s 40-880 | The Forum identifies business-related capital expenditure rules that may provide deductions over time where s 8-1 denies a capital/preliminary outgoing. | Use after characterising the expenditure and checking the statutory conditions/exclusions. |
| ITAA97 s 26-20 | Denies deductions for specified study-loan repayments even where the original education cost may have been deductible. | Separate the original tuition/course expenditure from repayment of the government loan. |
| TR 2024/3 | Current ATO ruling supplied for self-education expenses of individuals. | Use as administrative guidance to organise the current-employment nexus analysis after stating s 8-1 and the cases. |
Cases, rulings and authorities — proposition + exam function
| Authority | Proposition taught by the source material | When to use it |
|---|---|---|
| Amalgamated Zinc (de Bavay’s) Ltd v FCT (1935) 54 CLR 295 | The words “in gaining or producing” direct attention to expenditure incurred in the course of the income-producing activity. | Use as the doctrinal starting point for contemporaneity. |
| Maddalena v FCT 71 ATC 4161 | Expenditure incurred to obtain a new employment position/earning activity is preliminary and not incurred in earning income from that future position. | Use for job-seeking and initial qualification costs. |
| Softwood Pulp and Paper Ltd v FCT | Used for preliminary business expenditure incurred before the income-producing business has commenced. | Use where expenditure relates to investigating/establishing a future business. |
| Steele v DCT 99 ATC 4242 | Interest on borrowed funds can be deductible during a pre-income period where objective circumstances show a sufficiently committed and continuing income-producing purpose. | Use to explain why timing is important but not decisive. |
| Finn; Hatchett; Studdert | Current-skill self-education authorities. | Use where study maintains/improves current duties or objectively leads to increased income from the current activity. |
| MI Roberts; Ting; YDXM; Assefa; NT91/37; Masters | The supplied Week 9 reading uses these decisions/examples to illustrate the factual boundaries in self-education and professional qualification cases. | Use for comparison only where the taxpayer’s current duties and course content are genuinely analogous. |
Matching tutorial — fact-by-fact reasoning map
Identify Romek’s current employment duties at the time of each expense. Ask whether the study maintains/improves those skills or qualifies him for a new profession. Do not reason backwards from the fact that the course may later improve his career.
Separate occupancy expenses from running expenses, identify the area’s character/use and apportion for income-producing use.
Distinguish ordinary commuting from travel between workplaces or travel integral to the work/study activity. Apply the course travel authorities and any specific provision.
Classify conventional clothing, compulsory/non-compulsory uniform, protective clothing and occupation-specific clothing separately.
Ask whether the item is a work tool, private accessory or depreciating asset. The correct provision can differ depending on cost and expected effective life.
Where the legal outcome is uncertain and the facts are prospective, explain how a private ruling can provide Commissioner-binding protection for the applicant’s arrangement.
How to write this chapter in IRAC / tax-problem form
Issue. Identify the taxpayer, income year and transaction. Break the problem into separate receipts, outgoings, CGT events or administrative decisions. Do not write one broad issue such as “what tax is payable?”.
Rule / Law. Start with the exact Act and provision. If the section contains multiple limbs, subsections, paragraphs, exceptions or a method statement, set them out in the order in which they operate. Then add the case, ruling or ATO authority for the particular proposition it explains.
Application. Apply one fact to one legal element at a time. Compare the facts with the authority and deal with the strongest alternative characterisation. Where the law requires a calculation, show the legal order and the arithmetic together.
Conclusion. State the legal tax consequence and amount where possible. Then add any associated loss, penalty, objection/review, timing or administrative consequence relevant to the chapter.
Chapter mastery — 15 questions with model answers
Source-Coverage Audit — Every Statutory Reference in the Supplied Materials
This completeness layer preserves every detected Act, Part, Division, Subdivision, section, subsection, paragraph and method-statement reference from the supplied Forum/Tutorial materials. Use the teaching chapter above for explanation; use this audit to ensure no source reference is silently omitted.
Source-Coverage Audit — Every Case, Ruling and Authority in the Supplied Materials
Every detected case or ruling from the aligned materials is retained here. The blue link opens an AustLII search so the authority can be checked and later replaced with the most direct official/public judgment link where appropriate.
Detailed Forum / Lecture Source Notes — Completeness Layer
The following is the detailed teaching layer derived from the supplied Forum material. It is kept deliberately full at draft stage so that the final editing pass can improve prose without losing doctrine, examples, calculations or statutory detail.
Introduction To The Contemporaneity Principle
In order to claim a general deduction under section 8-1, a taxpayer must show that a loss or outgoing was incurred ‘in gaining or producing your assessable income’ or ‘in carrying on a business’ for that purpose.
The words ‘in gaining or producing’ are read to mean ‘in the course of gaining or producing’: Amalgamated Zinc (de Bavay’s) Ltd v FCT (1935) 54 CLR 295. With the words ‘in carrying on a business’ emphasis is often placed on the ‘carrying on’ component.
Although such expenditure might be an essential pre-requisite, it may be too preliminary or preparatory in a temporal sense to be regarded as incurred in gaining or producing a taxpayer’s assessable income.
We now direct our attention to this issue in the context of preliminary and post-cessation expenditure.
Contemporaneity Principle: Preliminary Expenditure
The general position is that expenditure incurred before the commencement of a business (including expenditure incurred to diversify an existing business) is not deductible under section 8-1 because it is not incurred in carrying on a business etc (section 8-1(1)(b)) and/or is capital expenditure (and therefore denied deductibility under section 8-1(2)(a)).
FCT v Maddalena 71 ATC 4161
*Softwood Pulp & Paper Ltd v FCT 76 ATC 4439 - Consider:
Does Subdiv 40-I ITAA97 now provide a capital allowance deduction over time for costs such as feasibility studies. See s 40-840(2)(d)(ii), s 40-832, 40-835, and s 40-855 ITAA97?
Also consider 40-880(2) and 40-880(2A) ITAA97 for business related costs (colloquially known as “blackhole” expenses), but note s 40-880(5) and 40-880(7) ITAA97 (which may be further subject to the non-commercial loss rules in Div 35 ITAA97: s 35-10(2B) ITAA97).
However, the contemporaneity proposition is qualified in light of the decision in Steele’s case.
*Steele v FCT 99 ATC 4242.
First consider some general propositions about the deductibility of interest under s 8-1 (as confirmed by the High Court in Steele):
The deductibility of interest is usually determined by examining the purpose of the borrowing, which is ascertained by the use to which the borrowed funds are put.
Generally, interest on money borrowed for the purpose of acquiring an income producing asset is deductible under s 8-1.
Interest is not normally a capital expense.
Also note that the security for the borrowing is irrelevant in determining the deductibility of the interest: FCT v Munro (1926) 38 CLR 153.
Returning to the contemporaneity issue, consider the following extract written by the majority judges in the High Court decision in Steele’s case:
‘The temporal relationship between the incurring of an outgoing and the gaining or production of assessable income may be one of a number of facts relevant to a judgment as to whether the necessary connection might, in a given case, exist, but contemporaneity is not legally essential and whether it is factually important may depend upon the circumstances of the particular case.’
The ATO says in Taxation Ruling TR 2004/4 at para 9, that:
“It follows from Steele that interest incurred in a period prior to the derivation of relevant assessable income will be 'incurred in gaining or producing the assessable income' in the following circumstances:
the interest is not incurred 'too soon', is not preliminary to the income earning activities, and is not a prelude to those activities;
the interest is not private or domestic;
the period of interest outgoings prior to the derivation of relevant assessable income is not so long, taking into account the kind of income earning activities involved, that the necessary connection between outgoings and assessable income is lost;
the interest is incurred with one end in view, the gaining or producing of assessable income; and
continuing efforts [per Callinan J in Steele] are undertaken in pursuit of that end” [Emphasis added].”
If Steele happened today, query whether Div 35 ITAA97 (deferring deductions from non-commercial business activities conducted by individuals) would quarantine the taxpayer’s losses so they are deductible only against future assessable income from the business activity (see ss 35-10(1) and 35-10(2) ITAA97). However, the real property test in s 35-40 ITAA97 may apply to permit the deduction (if other requirements are satisfied - s 35-10(1(a) ITAA97).
Note that s 26-102 ITAA97 can deny deductions for the holding costs of vacant land (eg interest and council rates) unless the land is in use (or available for use) in carrying on a business.
Contemporaneity Principle: Post-Cessation Expenditure
The general position is that expenditure incurred after the cessation of a business is not deductible under section 8-1 because it is not incurred in carrying on a business etc (section 8-1(1)(b)) and/or is capital expenditure (and therefore denied deductibility under section 8-1(2)(a)). See, for example, Amalgamated Zinc (de Bavay’s) Ltd v FCT (1935) 54 CLR 295.
However, this proposition is qualified in light of the following cases:
*Placer Pacific Management Pty Ltd v FCT 95 ATC 4459
FCT v Brown 99 ATC 4600
Matching Tutorial — Full Problem Source and Teaching Integration
The tutorial is part of the chapter, not an afterthought. Read the facts by turning each receipt, outgoing, event or procedural step into a separate issue. Write the relevant provision beside each issue before applying the cases.
Tutorial 8 - Week 9
Part A
Romek works 4 days per week as a paralegal at Jameson Beckett Lawyers (“JBL”), a commercial litigation firm in Southport. His annual salary is $50,000. Romek lives in a 2-bedroom apartment by himself in Broadbeach and is due to complete his Juris Doctor at Griffith University in June CIY.
Romek’s paralegal duties include legal research, preparing court documents, assisting with document discovery, attending client meetings with solicitors to take notes, typing letters, and filing documents at court. Romek has accepted an offer of employment as a solicitor with JBL on his admission to legal practice, expected in about June FIY.
Self-education costs
During the CIY, Romek studied 4 university subjects: Civil Litigation Practice, Commercial Law, Legal Profession and Ethics, and Family Law. The tuition fees for each subject were $4,700. The fees were incurred during the CIY and deferred through FEE-HELP. Romek also made a voluntary repayment of $1,500 towards his FEE-HELP debt during the CIY. JBL does not practise in family law.
Romek also intends to enrol in the Graduate Diploma of Legal Practice in September FIY, at a cost of $10,000. This course is required for admission into legal practice.
Romek paid $1,200 during the CIY to attend a short course titled Legal Technology and AI Governance. Romek says that the course improved his understanding of electronic discovery, document automation and AI tools that are increasingly used in commercial litigation; however, he says he also did it because he was attracted by the possibility of moving into technology law in the future where remuneration is typically higher.
Home office costs
Due to reduced office space (in an effort to save commercial rent), JBL required Romek to work from home 2 days per week because no workstation was available for him at the firm on those days. Romek converted the 2nd bedroom of his apartment, comprising 20% of the apartment’s floor area, into a dedicated work and study room. The room is not used for sleeping, tutoring (see below) or private purposes.
During the CIY, Romek paid $40,000 in rent, $1,200 for electricity, $1,800 in internet and mobile phone costs, and $1,200 for an ergonomic office chair. Romek estimates that the room, equipment, internet and phone were all used 60% for JBL employment duties and 40% for university study.
Travel costs
During the CIY, Romek incurred the following travel costs:
$350 in tram fares travelling between his apartment and JBL’s office, and back again, to get to and from work each day;
$300 in Ubers for travel between home and work while recovering from a rugby injury. Romek says these Ubers were necessary because of his injury and because he was carrying two A4 folders containing case law research for a matter he was working on (which were too large for his backpack);
$80 on his personal credit card for Uber fares incurred to travel from work to home one evening and returning to work the next morning. JBL had directed Romek to take home 3 archive boxes of court documents that were due to be filed with the court the next day. The boxes weighed approximately 30kgs in total. That evening, Romek was required to review the documents against a filing checklist and confirm that all required materials were included, which he did. JBL reimbursed the Uber fares in Romek’s next pay run.
$200 for travelling directly from JBL’s office to a tutoring centre in Burleigh Heads, where Romek derived $15,000 in assessable income during the CIY as an after-hours maths tutor to high school students one evening per week;
$150 for travelling from JBL’s office to home for a “quick dinner”, followed by $250 for travelling shortly afterwards from home to the tutoring centre; and
$400 on Ubers travelling from the tutoring centre back to his home late at night. Romek says the fares were necessary because his tutoring work finished late and he had read media reports about safety issues in Burleigh after dark.
Clothing and related expenses
JBL requires employees who attend court or client meetings to wear formal business attire. During the CIY, Romek purchased a navy-blue, Armani suit for $2,200, 4 white business shirts for $300, black leather shoes for $180, and two business ties for $100. He spent $150 dry-cleaning his suits. Romek wore these items exclusively for work, except that he wore the shoes once to attend a wedding.
To match his suit and to keep a professional image, Romek also spent $280 on an artificial leather, document wallet designed for the secure transport of confidential and sensitive documents for court events or client meetings.
Advise Romek whether any of the above expenses, or part thereof, are deductible to him. Support your answer with reference to relevant legislation and case law.
Part B (If time permits)
In April FIY, Romek was instructed by his boss to file urgent court documents and then to stop by the local Westpac bank branch to deposit $8,000 in cash received from a client in payment of JBL’s invoice for legal services (which was not trust money).
After filing the documents, Romek briefly stopped at a café for a cappuccino as it had been a stressful morning. When he went up to pay at the counter, Romek carelessly left his bag momentarily unattended at the table. The bag was stolen and has not been recovered.
The bag contained the $8,000 client payment, Romek’s personal wallet containing $180 in cash, and a business tie that had cost Romek $50. Romek had only purchased the bag a few months before the theft for $100 as well as his wallet for $60.
JBL received no insurance payout for the stolen funds. Romek believes he was specifically targeted for the theft because of the “sharp” business attire he says he was required to wear as a condition of his employment.
Advise JBL whether the $8,000 in stolen money is deductible to the firm under s 8-1 ITAA 1997. Support your answer with reference to relevant case law.
Advise Romek whether the other items stolen from him at the café (namely his bag, tie, wallet and $180 in cash) are deductible to him under s 8-1 ITAA97. Support your answer with reference to relevant case law.
Additional Tutorial Required Reading
Week 9 Tutorial: Required Reading
In the Week 9 tutorial, we discussed the nexus between Romek's self-education expenses and the
gaining or producing of his assessable income.
Important note: This note is provided for educational purposes in relation to the tutorial problem
involving Romek. It is not personal taxation advice to any student. Students should not assume that
their own JD, LLB, PLT or other legal education expenses are deductible merely because they work, or
have worked, as paralegals, law clerks, legal assistants or in other legally related roles. Whether any
self-education expense is deductible depends on the taxpayer’s own employment duties, course content,
purpose, timing, evidence and broader taxation circumstances.
As part of your revision, you are encouraged to read all of Taxation Ruling TR 2024/3: Income Tax:
Deductibility of self-education expenses incurred by an individual, including the summary of principles
at paragraphs 22–25.
The following cases are especially relevant:
FCT v Finn (1961) 106 CLR 60
FCT v Hatchett 71 ATC 4184
FCT v Studdert 91 ATC 5006
FCT v Maddalena 71 ATC 4161
FCT v MI Roberts 92 ATC 4787.
In TR 2024/3, compare Examples 1, 11, and 13. What is the basis for the ATO’s conclusion in each of
these examples?
We discussed the view that a law degree is not merely workplace training. Rather, it forms part of the
academic requirements for admission as a solicitor. Consequently, the ATO is likely to regard Romek's
law degree as being objectively directed towards obtaining his initial professional qualification for legal
practice. On that basis, the tuition costs of the degree as a whole are unlikely to be deductible under s
8-1 of the ITAA 1997.
However, a further question arises. If the costs of Romek's qualification, considered in its entirety, are
not deductible, could the costs of particular subjects within the degree nevertheless be separately
characterised, or allocated, as sufficiently connected to his current income-earning activities? In
considering this issue, review:
Ting v FCT [2015] AATA 166, and
TR 2024/3 at paras 81 to 85, and Example 21.
Regarding the role of examples in a tax ruling, note paragraph 8 of TR 2024/3, as well as the following
observations of Senior Member Evans-Bonner in YDXM v FCT [2022] AATA 2382 (at para 41):
‘…I observe that the Tax Ruling is a policy document that is meant to provide guidance to
taxpayers and decision-makers when interpreting the relevant statutory provisions. The
similar or analogous facts. The circumstances of each individual taxpayer, their employment
and their self-education are far more nuanced than these simple examples suggest. Each case
requires consideration on its own merits, and such a simple example is not of itself sufficient
to act as a precedent for subsequent cases. As Dixon CJ stated in Finn at 64, “in the end the
decision often will depend on the facts of the given case.”’
Page 1 of 2
Although Tribunal decisions are not binding precedents in the same way as court decisions, they may
nevertheless be persuasive. Consider the facts, reasoning and outcomes in each of the following cases:
YDXM v FCT [2022] AATA 2382 - the taxpayer’s JD costs were not deductible.
Assefa v FCT [2009] AATA 2 - the taxpayer’s tuition costs for her nursing degree were not
deductible.
NT91/37 v FCT [1991] AATA 290 - the taxpayer’s pre-admission course at the College of Law
and admission expenses were not deductible.
Contrast the above cases, with:
Masters v FCT [2017] AATA 1042 - the taxpayer was permitted deductions for some of the
costs of his law degree. What was different about this case that led the Tribunal to permit some
deductions?
You should also review the ATO website guidance at “Lawyers expenses P – S”, specifically the “Selfeducation expenses” topic on that page. What does the ATO say in the example involving Christine and
her Practical Legal Training Program costs?
Note too that while the deductibility of tuition fees depends on the s 8-1 nexus analysis, HELP/FEEHELP repayments are non-deductible: s 26-20 of the ITAA 1997.
Having considered all of the above materials, what advice would you give Romek regarding the
deductibility of his self-education expenses? Provide him with advice about this including what you
consider to be the better view in light of the law in this area.
The better view, having regard to the Commissioner’s likely approach, is that Romek’s JD expenses are
unlikely to be deductible because the degree is directed to obtaining the initial professional qualification
for admission as a solicitor. Any contrary subject-by-subject argument should be treated as factsensitive and high risk.
As a matter of good professional practice, Romek should be advised of the option of seeking a private
ruling from the ATO. Advising clients of mechanisms available for obtaining the ATO’s view about
their taxation affairs is an important aspect of professional legal practice. A private ruling may provide
greater certainty regarding the tax treatment of Romek's self-education expenses and assist him in
managing the risk associated with adopting a particular tax position. In this regard, review the ATO
guidance at:
“Applying for a private ruling”
“How we deal with your private ruling application”, and
“After we give a private ruling”.
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