Income Tax Assessment Act 1997 - s 8-1

Commissioner of Taxation v Finn (1961) 106 CLR 60; [1961] HCA 61

Commissioner of Taxation v Hatchett (1971) 125 CLR 494; [1971] HCA 47

Ronpibon Tin NL v Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15

Lunney v Commissioner of Taxation (1958) 100 CLR 478; [1958] HCA 5

1. Emebet Assefa came to Australia from Ethiopia as a skilled migrant in 2003. For much of the time since then she has been in regular employment, on a casual or part-time basis, in the health care sector.
2. At the beginning of the 2005 academic year she commenced study, on a full-time basis, towards the award of a degree in Nursing. She appears to have been an accomplished student in that course, completing it in the minimum time and qualifying for the degree at the end of the 2007 academic year. In 2008 she was accepted into the Graduate Registered Nurse program at the Concord Repatriation General Hospital.
3. For the financial year ended 30 June 2007 she claimed as an allowable deduction an amount of $14,687, described as "self-education expenses". The claim was in relation to her enrolment in the Bachelor of Nursing course. The claim was not accepted by the Commissioner of Taxation. Mrs Assefa objected against the disallowance of the claim, and the Commissioner disallowed the objection. The objection decision is now before the Tribunal for review.

1. There are two issues for my consideration. The first is whether, in principle, Mrs Assefa is entitled to a deduction under s 8-1 of the Income Tax Assessment Act 1997 ("the Act") for having incurred her self-education expenses "in gaining or producing" her assessable income. The second issue, if such a deduction is allowable in principle, is how much of her expenditure is allowable under that provision.

DID MRS ASSEFA INCUR THE EXPENDITURE "IN GAINING OR PRODUCING" HER ASSESSABLE INCOME?

1. Mrs Assefa based her case on the proposition, expressed in what I will describe as her letter of contentions dated 18 September 2008, that her income-earning activities required the exercise of particular skills and knowledge, and that her study increased those skills and "objectively led to [an] increase [in her] income".
2. In stating that proposition, she seemed to be relying on the following statements from her employers:

This is to certify that Ms Emebet Assefa, our employee, has shown improvement on the quality of her nursing service to our facility during her formal study in Australian Catholic University as a nursing student. We have also observed that as a result of the knowledge and skills she has acquired and advanced from her formal study she could maintain her position in our facility as assistant in nursing competently. (T1-2)

This is to verify that Mrs Emebet Assefa is employed by Leigh Place Retirement Housing in the capacity of permanent part-time Care Service Employee - Grade 2. This occupation involves the care of frail and aged persons, including the administration of medication from Webster Packs and liaising with residents (sic) doctors.

Mrs Assefa has completed her studies as an RN (Registered Nurse). This qualification has improved Mrs Assefa's current work related skills and could eventually lead to further advancement in this sphere of employment. (T1-3)

1. Some of the words that Mrs Assefa and her employers used are similar to those that the Commissioner put into a public taxation ruling, TR 98/9, in 1998. The ruling itself is an attempted summary of some of the principles that have been established over the years by the courts. The reference to skills is found in Commissioner of Taxation v Finn (1961) 106 CLR 60; [1961] HCA 61, where Windeyer J said at page 70:

Generally speaking, it seems to me, a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling.

1. Other judges have used different words to deal with different sets of circumstances. Helsham J said in Commissioner of Taxation v White 75 ATC 4018 at page 4022:

... expenses incurred in pursuing studies associated with employment will qualify as allowable deductions under sec. 51 [now s 8-1] when it can be said that those studies are part and parcel of the employment, which means that the expenditure is incurred in the process of carrying out the employee's duties, or, even if they are not such, they can be seen to have a direct effect on income.

1. The case of Commissioner of Taxation v Hatchett (1971) 125 CLR 494; [1971] HCA 47 was about a teacher who undertook two different study courses. The first was a Teacher's Higher Certificate. When the teacher had completed the certificate course he was immediately entitled to be paid more for doing the same work without any change in grade. Menzies J accepted that the expenditure on this course was deductible (at page 498 [7]):

The taxpayer, in reliance upon the conditions of his employment, spent money to earn more.

1. On the other hand, his Honour rejected a deduction claim for the second course, where the teacher undertook university studies in the Faculty of Arts. This was despite the fact that the employer, the Department of Education, encouraged the study and in fact reimbursed the teacher in part for his expenditure. According to his Honour, those factors were not sufficient to allow the deduction claim. He said at page 499 [11]:

I am not able to find any connexion between the payment of fees and the assessable income of the taxpayer beyond the circumstance, which I take to be self-evident, that a teacher who has pursued university studies is likely to be a better teacher than if he had not done so and is therefore more likely to obtain promotion within the department. In my opinion this general consideration is not enough to make the fees deductible; there must be a perceived connexion between the outgoing and assessable income.

1. In two other cases - not dealing specifically with self-education expenses but with deductions more generally - the High Court has identified the following two broad principles relevant to s 8-1 of the Act:
   • (i) The expenditure must be "incidental and relevant" to the gaining or producing of assessable income: Ronpibon Tin NL v Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47 at 56; [1949] HCA 15 at [14];
   • (ii) The expenditure must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense: Lunney v Commissioner of Taxation (1958) 100 CLR 478; [1958] HCA 5.
2. I have to decide this case in the light of what the courts have said. For the purpose of that enquiry, the two critical factors are the income-earning activities that Mrs Assefa was undertaking in the 2007 income year, and the connection between those activities and the course she was undertaking.
3. In the 2007 income year Mrs Assefa had two jobs. One of her jobs was a part-time position as an "Assistant in Nursing" with an organisation known as The Bay Aged Care ("The Bay"), operating in the Sydney suburb of Blakehurst. The second job was another part-time position, as a "Care Service Employee, Grade 2 (Homemaker)", with an organisation known as Leigh Place Retirement Housing ("Leigh Place"), in the Sydney suburb of Roselands.
4. The Bay provided a Job Description for the "Assistant in Nursing" position. The "primary accountabilities" of the position were said to include, among many others:

• to ensure that nursing care is provided in an efficient and effective manner whilst ensuring the residents' dignity and respect is maintained;
• to ensure that residents are treated with respect as you provide your care;
• to ensure that the Registered Nurse/Endorsed Enrolled Nurse is promptly informed of any changes to residents' condition;
• to participate in education opportunities offered both at the Bay and externally;
• to provide total nursing care;
• to provide all care in a manner that respects the rights, dignity and individuality of each resident.

1. Leigh Place also provided, in relation to the position of Care Service Employee, Grade 2 (Homemaker), a Job Description, a set of Job Requirements and a Statement of Duties. Included in the Statement of Duties were the following:

• provide assistance with bathing, showering and personal hygiene;
• organising, supervising and administering prescribed medication;
• providing assistance with toileting and use of incontinence aids;
• providing assistance with dressing and/or undressing, organising clothing;
• providing emotional support for short-term or reversible conditions such as depression or grief;
• providing assistance with mobility and transfer in and out of bed or a chair;
• providing assistance with tasks such as fitting hearing aids, reading, making telephone calls or writing letters;
• ensuring that residents are receiving medical, rehabilitative and psychological intervention as required, by providing information and referral;
• housekeeping as required by residents.

1. Also in evidence were extracts from an Australian Bureau of Statistics ("ABS") publication setting out, in the context of the Australian Standard Classification of Occupations ("ASCO"), certain details in relation to three levels of occupation in the health care sector - "Personal Care and Nursing Assistants"; "Enrolled Nurse" and "Registered Nurse". The ASCO details for "Personal Care and Nursing Assistants" were as follows:

PERSONAL CARE AND NURSING ASSISTANTS assist in caring for patients in hospitals, nursing homes, clinics, or the patient's home.

Skill Level:

The entry requirement for this unit group is an AQF [Australian Qualifications Framework] Certificate II or higher qualification or at least one years relevant experience.

Tasks Include:

• assisting clients with their personal care needs such as showering, dressing and eating
• assisting clients with mobility and communication needs and ensuring that messages are passed on
• applying practical intervention procedures for dementia or behavioural problems
• providing daily care to patients under the guidance of a registered nurse
• participating in the planning of care for individual patients
• observing and reporting any changes in condition or any complaints about care to a registered nurse

1. I am satisfied, on the basis of the ASCO description of the most common tasks undertaken by "Personal Care and Nursing Assistants", that Mrs Assefa's positions at The Bay and Leigh Place were within that classification.
2. By contrast, these were the ASCO details for the occupation of "Registered Nurse":

Provides nursing care for patients in hospitals, nursing homes, extended care facilities or other health care facilities and in the community.

Skill Level:

The entry requirement for this occupation is a bachelor degree or higher qualification. Registration or licensing is required.

Tasks Include:

• assesses, plans, implements and evaluates nursing care for patients according to accepted nursing practice and standards
• liaises with other health professionals and members of health teams
• assists medical practitioners to examine patients, administer treatment and deliver babies
• observes, records and reports on patients' condition and their reactions to drugs and other treatments
• promotes health and assists in the prevention of ill health by participating in health education and other health promotion activities
• supervises and coordinates the work of enrolled nurses and other health care workers
• may specialise in a particular area of nursing care

1. Based on the ASCO descriptions, there is a significant difference between the position of Enrolled Nurse and Registered Nurse, on the one hand, and Personal Care Assistant/Nursing Assistant on the other hand. In addition to the requirement of registration or licensing, the Enrolled Nurse and the Registered Nurse have entrusted to them a range of activities that could not be undertaken by the Nursing Assistant. At its simplest level, the Enrolled Nurse and the Registered Nurse are nurses; the Nursing Assistant, or Personal Care Assistant, is not.
2. Mrs Assefa gave evidence that there is not the strict delineation between the three levels of health care worker that the ASCO descriptions suggest. She said, for example, that when she was at The Bay or at Leigh Place she would sometimes perform some of the tasks that would often be carried out by an enrolled nurse or a registered nurse. I infer that the reason for this is that enrolled and registered nurses sometimes perform the duties of the nursing assistant, rather than the reverse.
3. A person does not need to have a degree in Nursing, or to be studying for such a degree, to be employed as a Personal Care Assistant or Nursing Assistant. The ASCO extract for "Personal Care and Nursing Assistants" indicates the "entry level requirement" is an AQF Certificate II or higher. Neither of Mrs Assefa's employers required her to be undertaking the degree course: ST4-122 and ST5-124.
4. I find that Mrs Assefa was not incurring the expenditure "in gaining or producing" her assessable income in the way the courts have explained that expression. Instead, she was studying towards an initial qualification - in her case, as a registered nurse.
5. To pick up some of the language of the cases, at the time that she incurred the expense in the 2007 income year, she was not gaining income by the exercise of any particular skill, such that her study would increase her ability to perform her role as an assistant in nursing: Finn. The study was not "part and parcel" of her employment: White. She did not spend money to earn more, in the way that was explained in Hatchett. Her expenditure was not "incidental and relevant" to the gaining or producing of assessable income: Ronpibon Tin.
6. I accept that it is not necessary for a taxpayer to show that any one or more of the factors set out in [7] to [10] above apply to his or her own circumstances. The proper view to take is that those factors have been accepted by the courts as sufficient to ground a claim for deductible self-education expenses. Nevertheless, a taxpayer whose circumstances satisfy none of those factors will find it difficult to succeed with a self-education claim.
7. As commendable as it is that she was improving her skills and knowledge and equipping herself for a successful career and for a significant contribution to the Australian community, the income tax law does not allow her deduction claim.

I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S E Frost, Member

Signed: .................[sgd]...............................................................

Solicitor for the Respondent Mr Navid King, ATO Legal Services