respondent. Tribunal affirms the Commissioner's decision to disallow the applicant's claimed work-related education expenses; claim denied.
Key principles
Expenses of study that are incurred primarily to obtain a new qualification enabling the taxpayer to enter a different or new income-earning activity do not have the necessary...
Where the costs are for subjects that form part of an integrated course of study leading to a new qualification, the correct approach is to look at the purpose of the study as a...
A general, indirect or incidental improvement in the taxpayer's skill from university study (for example making the taxpayer a better employee) is not sufficient to establish the...
Issues before the court
Whether the applicant's expenditure on the Master of Applied Commerce and Graduate Certificate subjects constituted deductible work-related...
Whether a taxpayer may apportion the cost of an integrated course and claim deductions for only those subjects or parts of subjects that are...
Cited legislation
Plain English Summary
The Tribunal rejected an applicant's claim to deduct parts of postgraduate course fees as work-related education expenses. It found she enrolled in the course before starting the job, the course content was largely beyond her employment duties, and the study was primarily aimed at obtaining new qualifications for different employment. The Tribunal held you cannot cherry-pick parts of an integrated degree and claim only those costs as deductible; you must assess the purpose of the study as a whole. Applying the High Court's Hatchett principle and similar authorities, the Tribunal affirmed the Commissioner's disallowance.
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Deep Dive
1,801 words · generated 18/08/2026
What happened
This is an AAT Small Taxation Claims Tribunal decision, delivered by Senior Member B. H. Pascoe on 22 May 2009, disposing of an application by Yuanyuan Yan to review the Commissioner of Taxation's disallowance of claimed work-related education expenses for the 2006–07 income year. The Tribunal affirmed the Commissioner.
Federal Commissioner of Taxation v Hatchett [2009] AATA 377 | Case summary | Zoe
1 cited instrument linked from this judgment.
Key factual points (grounded in the Tribunal's numbered reasons):
Ms Yan commenced postgraduate study at the University of Melbourne (initially Master of Applied Commerce (International Business), later transferred to Accounting) and enrolled in a Graduate Certificate of Wealth Management at Deakin University in February 2007 [3].
She was employed by JK Enterprises Pty Ltd (Arthur Murray franchise) as accounts manager and personal assistant: full-time from 30 June 2006 to 26 February 2007, part-time thereafter to 30 June 2007 [3]. Her employer provided a statement of duties covering accounting, payroll, superannuation administration, liaising with accountants and general administration tasks [5].
She claimed study-related deductions initially shown as $13,175 on the tax return; supplied detailed schedules totalling $14,626 (later revised) and eventually conceded certain parts as irrelevant, reducing her claimed fees to $12,891 [4].
The Commissioner disallowed the objection; the Tribunal conducted a hearing where both Ms Yan and her employer Ms Drake gave evidence about the nature of the duties and the extent to which the studies were relevant to the employment [2–6].
The Tribunal held that the expenses were incurred primarily to obtain new qualifications and were not sufficiently connected with the applicant's existing income-earning activities. It rejected the applicant's attempt to apportion fees to individual subjects or topics within subjects and affirmed the Commissioner's decision to disallow the claimed deductions.
Why the court decided this way
The Tribunal's decision is driven by two core legal ideas taken from the authorities it cites and applies.
Nexus requirement (Hatchett principle)
The Tribunal emphasised that there must be a perceived connexion between the outgoing and assessable income; general improvement of capability by study is not enough. The Tribunal quoted Menzies J in Hatchett to that effect: "[t]here must be a perceived connexion between the outgoing and assessable income" [7]. The Tribunal applied that approach to the facts it found.
Purpose-of-study-as-a-whole and limits on apportionment
The applicant attempted to claim only the costs of particular subjects (or parts of subjects) she said were relevant to her employer duties, out of the integrated program leading to the master's degree and the graduate certificate. The Tribunal rejected that method, holding that the costs were incurred for study of required subjects included in the integrated programs, and that the correct question is the purpose of the study as a whole rather than carving up fees subject-by-subject [6–7].
The Tribunal found the overall content and level of the courses were well beyond the duties of Ms Yan's employment, and that the study was designed to obtain new qualifications enabling different and more highly paid employment (which, in fact, she later obtained) [final paragraphs]. The Tribunal therefore concluded the expenditure was akin to cases such as Hatchett and Maddalena where study expenses were incurred to open up or qualify for new forms of income-earning activity and thus lacked the necessary nexus to current assessable income.
On the facts, the Tribunal preferred the employer's evidence that the applicant's duties did not encompass the advanced technical accounting, legal or superannuation responsibilities the applicant attributed to herself, and the Tribunal observed the applicant had exaggerated duties in trying to tie course content to her role. The timing, enrolment in the course before employment, also informed the Tribunal's view of the purpose of the studies [6].
Before and after state of the law
Before: The controlling principles applied here are longstanding. Hatchett (High Court) establishes that a mere general improvement of skill through university study, with the possibility of improved prospects, is not enough to show a sufficient nexus for deduction. Maddalena and other authorities develop the proposition that where expenditure is incurred to obtain a new qualification enabling a different income stream, the expense lacks the essential character of an outgoing incurred in gaining assessable income from the taxpayer's existing activities.
After this decision: The Tribunal applied those authorities to reaffirm that
the inquiry focuses on the purpose of study as a whole,
apportionment of integrated course costs into deductible pieces is not permissible where the study forms part of an integrated qualification intended to secure new employment, and
factual findings about the employee's actual duties and timing of enrolment are decisive in assessing nexus.
Practitioners should read this decision as a practical illustration of the application of Hatchett-style reasoning at the AAT level: where a postgraduate program is integrally aimed at obtaining a new qualification, deduction will be denied even if discrete topics might be of some incidental utility to the taxpayer's present employment.
Key passages with plain-English translation
Quoted passage (from Hatchett and adopted in the Tribunal's reasoning), the Tribunal reproduces Menzies J's statement:
"I am not able to find any connexion between the payment of fees and the assessable income of the taxpayer beyond the circumstance ... that a teacher who has pursued university studies is likely to be a better teacher ... 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." [7]
Plain English: Simply becoming a better worker because of university study does not automatically make the fees tax-deductible. The law requires a recognisable link between the cost and the taxpayer's current way of earning money.
Tribunal's statement rejecting apportionment:
"In my view this approach is not open. The costs which Ms Yan incurred were for the study of the required subjects included in a course of study in order to be awarded a Masters of Applied Commerce/Accounting and a Graduate Certificate of Wealth Management." [6]
Plain English: You cannot pick and choose parts of an integrated degree to claim as deductible; the relevant question is why the program as a whole was taken.
Tribunal on purpose and actual outcome:
"I am satisfied that the expenditure was incurred to enable Ms Yan to obtain two new forms of qualification to better suit her to obtain a new and different income earning activity ... It is more in common with cases such as Hatchett, Maddalena and Re Assefa ... where it was said that the expenditure was incurred primarily for the purposes of opening up or qualifying for a new and, possibly, different income earning activity." [final paragraphs]
Plain English: The Tribunal found the study was primarily aimed at securing new, different jobs, not at maintaining the skills needed for her current job; therefore the fees were not deductible.
What fact patterns trigger this precedent
From the Tribunal's reasoning, this decision will be engaged where:
The taxpayer has enrolled in an integrated course or degree that leads to a new qualification and seeks to claim study expenses claimed as work-related.
The enrolment or decision to commence study predates or is otherwise unrelated to the current employment (timing is relevant).
The course content is advanced or at a level substantially beyond the duties actually performed.
The taxpayer attempts to apportion overall course fees to particular subjects or topics on the basis of asserted relevance.
Employer evidence (or other contemporaneous evidence) indicates the taxpayer's duties do not require the advanced skills taught in the course.
There is evidence that the study was a step toward a career change or the taxpayer subsequently took up different, higher-paid employment using the new qualification.
If this mix of facts exists, the Hatchett-style rationale applied by the Tribunal suggests deductions will be resisted.
How later courts have treated it
Within the reasoning of this decision the Tribunal cites and applies Hatchett and Maddalena and refers to the AAT decision in Assefa as analogous. The Tribunal uses them to reinforce the rule that the correct focus is the purpose of the study as a whole and that an attempt to apportion integrated course costs fails if the overall purpose is to obtain a new qualification. This decision follows rather than departs from those earlier authorities. The decision functions as an application of those principles in the AAT context, illustrating how the facts drive the application: timing of enrolment, course level relative to duties, and credibility of testimony on duties are decisive.
(As this deep dive is confined to the material cited and discussed in the Tribunal's reasons, it does not catalogue subsequent appellate treatment beyond what the Tribunal itself relied upon.)
Still-open questions
The decision clarifies several practical points but leaves some issues that may require more fact-sensitive elaboration by future tribunals or courts:
Apportionment methodology: The Tribunal rejects apportionment of an integrated program where the study's purpose is to obtain a qualification, but it does not provide a formal test or formula for when apportionment might be permissible in other circumstances. Where a course is genuinely modular and some modules are clearly and severably undertaken to maintain skills for current employment, the boundaries are not precisely spelled out here.
Mixed-purpose study: The Tribunal treats the purpose-of-study-as-whole approach as decisive. But it does not provide granular guidance where a taxpayer can demonstrate contemporaneous employer directives, contractual obligation to undertake specified subjects, or where some subjects are mandatorily required by the employer: those situations may call for a finer analysis of nexus.
Effect of employer support: The Tribunal observed that employer support and a contemporaneous pay rise do not automatically establish deductibility. However, it leaves open how strong employer direction (for example, a clause in the employment contract requiring certain study) would shift the analysis.
Evidence standards for duty content: The decision turned on disputed factual evidence about the scope of duties. Future decisions will develop the evidentiary expectations about proof that course content is necessary or integral to performance of duties.
Practitioners assessing similar claims should note that outcome turns heavily on the factual matrix: timing of enrolment, the content and level of study relative to duties, credible employer evidence about duties, and the taxpayer's actual use of skills learned in current employment.
This analysis is based solely on the Administrative Appeals Tribunal reasons in Yan and Commissioner of Taxation [2009] AATA 377. It extracts and organises the Tribunal's reasoning and factual findings, quoting and citing the Tribunal's numbered paragraphs where the Tribunal itself identifies facts and applies authorities (see especially the Tribunal's reproduction of Menzies J in Hatchett at [7]).
This is general legal information, not legal advice. I can make mistakes. Before you act on, rely on, or use any of this material you should get a qualified Australian lawyer to check it.
Judgment (20 paragraphs)
[1]
Yan and Commissioner of Taxation [2009] AATA 377; (2009) 75 ATR 732 (22 May 2009)
INCOME TAX - education expenses - work related - proportion of cash incurred in courses of study - whether allowable deduction - Master of Applied Commerce (Accounting) - Graduate Certificate of Wealth Management
This is an application to review a decision of the respondent to disallow an objection to the income tax assessment of the applicant for the year ended 30 June 2007. The objection was against the disallowance as a deduction of the amount of $13,175 claimed as work related education expenses.
At he hearing, the applicant, Ms Y Yan, was unrepresented. The respondent was represented by Mr A Nicholas, an officer of the respondent. Evidence was given by Ms Yan and Ms J Drake, the manager, sole director and owner of JK Enterprises Pty Ltd, the employer of Ms Yan during the relevant period.
Ms Yan came to Australia in July 2005 to enrol at the University of Melbourne for a Masters of Applied Commerce in International Business. She had an undergraduate degree in Information Management Systems. At the end of 2005 she transferred to a Master of Applied Commerce in Accounting. In February 2007 she enrolled at Deakin University in a Graduate Certificate of Wealth Management. From 30 June 2006 to 26 February 2007 she was employed full time by JK Enterprises Pty Ltd, trading as Arthur Murray Franchised Dance Studios (Arthur Murray) as an accounts manager and personal assistant to Ms Drake. From 26 February 2007 to 30 June 2007 she reverted to part-time employment with Arthur Murray.
After lodging the return, Ms Yan was requested to provide details of the $13,175 claimed. In her response she listed expenditure relating to the two courses totalling $14,626. She stated the connection between the expenditure and her employment as:
[9]
The study of accounting improves my skills and knowledge of accounting practice I engage as accounts manager.
The study at Deakin University of Retirement Income Stream offered me great knowledge on tax issues and superannuation. Although studied three subjects only this one relates with my work.
[10]
The details of the expenditure of $14,626 were provided in this response. In providing further information after the objection, the expenditure was said to be $14,411. The comparison was:
[11]
In a subsequent letter of 28 November 2008, Ms Yan stated that she accepted that within one subject at Melbourne University some topics were not relevant to her work and within the one subject she was claiming in relation to the Deakin University course a similar position arose. As a result she reduced her claim by 3/11 of the fees for those two subjects, or $1,520, making the amount claimed as $12,891.
[12]
In effect, the claim for deduction by Ms Yan is a claim for part of the cost of studying four subjects out of six actually studied in the course of seeking to obtain a Master of Applied Commerce and a Graduate Certificate of Wealth Management on the basis that some subjects and some topics within some subjects were relevant to her employment.
In an attached letter to the initial response to a request for details, Ms Drake as Managing Director of Arthur Murray set out the major duties of Ms Yan as including:
[13]
Budgeting and cost control, account payable and receivable, debt collection, petty cash and banking, bookkeeping, BAS, PAYG, MYOB maintenance and processing the end of month reconciliations.
Responsible for preparation and analysis of weekly management, income and expenses reporting.
Working closely with the external Accountant, regularly liaising on tax issues and employee entitlements etc.
Processing weekly end-to-end payroll for around 6-8 staff.
Administration of superannuation and work cover.
[14]
Co-ordinating and developing relationships with service providers, suppliers and customers; assisting and liaising with various members of the organisation.
Organising international and inter-state schedule, travel and accommodation.
Daily update of client information databases to ensure accurate records.
Responsible for purchase orders, studio supplies and associated procedures.
Provide HR administrative support.
Other general administration tasks as required by the General Manager.
[15]
In her various written responses to questions raised by the respondent in dealing with her claim and in her evidence at the hearing, Ms Yan sought to explain the relevance of the studies to her employment. In particular she said that, at the commencement of her employment, she knew nothing about superannuation. Subsequently, there was a superannuation audit of the company's contributions by the Australian Taxation Office. She maintained that her study of the subject Retirement Income Streams within the Graduate Certificate of Wealth Management provided her with the essential knowledge of superannuation so as to deal with issues arising in her employment responsibilities. The subjects within the Masters course which she maintained were relevant to her employment were Strategic Cost Management, Corporate Reporting and Legal Issues for Accountants. In relation to the first of these, Ms Yan said her duties included Review current processes and advise/implement any improvements required and assist Managing Director with planning and controlling organisational activities. In relation to Corporate Reporting, Ms Yan said that her duties included looking at technical issues relating to the application of accounting standards and monthly, quarterly and yearly accounts reporting to external accountants. In relation to Legal Issues for Accountants, Ms Yan stated that it is essential to obtain an overview on legal problems related to business contracts and the regulation of company due to the special nature of the business as both a franchisee and head franchisee, where I have been required to assist with the legal issues with the formulation of new franchises, to understand legal documents such as franchise agreement and royalty policies and to deal with intercompany contractual liabilities.
Ms Yan maintained that she was the only person responsible for the financial paperwork of Arthur Murray. She said that her employer was aware of her study and supportive of that study, particularly in the change to part time as a result of her study requirements. While she acknowledged that there were no opportunities for promotion within such a small company, she said that she did receive a pay increase from $20 to $26 per hour in February 2007 when she changed to part time work. Ms Yan said that, prior to 30 June 2007, she had no thoughts of leaving her employment. However, she did leave Arthur Murray in late 2007 to become a financial planner with a financial advice company. She maintained that, while her employment with Arthur Murray was not dependent on continuing a course of study, she believed that it was a significant factor in her being employed and significant in her performance of the duties of employment by maintaining and improving her skills.
[16]
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.
[17]
I am satisfied on the evidence of Ms Drake that the course of study was not a requirement of her employment, was not a significant factor in gaining employment and did not lead to any increase of income. I am satisfied also that Ms Yan somewhat exaggerated the duties within the employment in an effort to better relate them to the subjects or topics for which she claimed a deduction.
[18]
Given the courses of study which Ms Yan was undertaking in the relevant year I am satisfied that the expenditure was incurred to enable Ms Yan to obtain two new forms of qualification to better suit her to obtain a new and different income earning activity. It is more in common with cases such as Hatchett, Federal Commissioner of Taxation v Maddalena(1971) 2 ATR 541 and ReAssefa v Commissioner of Taxation[2009] AATA 2 where it was said that the expenditure was incurred primarily for the purposes of opening up or qualifying for a new and, possibly, different income earning activity and did not have the necessary connection with the current income earning activity. In my view it is necessary to look at the purpose of the study as a whole and not seek to apportion a part of a cost in an effort to relate some part of the course of study to income earning activities. Here, I am satisfied that the costs incurred were to obtain the additional qualification to enable Ms Yan to obtain different and more highly paid employment which, in fact, she was subsequently able to do.
It follows from the foregoing that the decision to disallow the expenses claimed should be affirmed.
[19]
I certify that the fifteen (15) preceding paragraphs are a true copy of the reasons for the decision herein of
[20]
Advocate for the Respondent Mr Anthony Nicholas, Australian Taxation Office
Parties
Applicant/Plaintiff:
Federal Commissioner of Taxation
Respondent/Defendant:
Hatchett
Legislation Cited (1)
Tax Assessment Act 1997
AI Analysis
Outcomerespondent
Disposition:
Tribunal affirms the Commissioner's decision to disallow the applicant's claimed work-related education expenses; claim denied.
In her evidence, Ms Drake accepted that it was possible that Ms Yan obtained some benefit from her studies in performing her role. However, the only specific matter which she could identify was her ability to operate MYOB accounting software in house where it had been outsourced previously. In relation to Ms Yan's claim regarding her involvement with superannuation, Ms Drake said that Ms Yan did not have any role in remedying problems arising from the superannuation audit which was done by the external accountants and her role was limited to administration of superannuation contributions. She also denied that Ms Yan's role included reviewing processes or assisting with planning for Arthur Murray. She did acknowledge that Ms Yan had sometimes suggested an alternative supplier for such things as water or toilet paper. Ms Drake did not accept that Ms Yan had any involvement in the application of accounting standards, her role being limited to providing accounts reporting to the external accountants. Ms Drake was adamant that Ms Yan had no role in relation to legal issues of Arthur Murray. Ms Drake said that Ms Yan regularly sought pay increases. She said that she did agree to a pay increase in February 2007 but as a normal consequence of Ms Yan having a better understanding of the Arthur Murray business after eight months, some improvement in her performance and a consideration of the cost of replacing her. Ms Drake said that she was aware that Ms Yan was ambitious, likely to become over qualified for the job and likely to move on to other employment.
It was submitted for the respondent that the expenditure claimed by Ms Yan did not have the essential character of an income producing expense, was not relevant and incidental to her income producing activities and was incurred at a point too soon to be properly regarded as incurred in gaining assessable income. It was said that her employment income was not based on the exercise of a skill which was improved or maintained by education expenses and there was no evidence that the course of study could or would lead to an increase in income. It was argued, further, that the subjects in relation to which the deductions were claimed were at a significantly higher level than could be said to be relevant to the employment duties so that they had minimal or no connection with those duties.
In response Ms Yan continued to argue that there was a connection between the costs relating to the subjects claimed and her employment duties. She sought to distinguish decisions such as in Federal Commissioner of Taxation v Hatchett[1971] HCA 47; (1971) 2 ATR 557 on the grounds that, here, she was claiming only the costs relating to subjects relevant to her employment not the whole cost of the course of study leading to the degree or graduate certificate.
It is relevant to note that Ms Yan enrolled in and commenced a course of study for her Masters degree well prior to commencing employment with Arthur Murray and her decision to undertake that course of study was clearly unrelated to that subsequent employment. It is clear, also, that this case has been put differently to other somewhat similar claims in that Ms Yan is arguing that she can claim a proportionate part of the total costs of undertaking the study of a subject based on the part of the study which is said to be relevant to employment and exclude the part which is not relevant. In my view this approach is not open. The costs which Ms Yan incurred were for the study of the required subjects included in a course of study in order to be awarded a Masters of Applied Commerce/Accounting and a Graduate Certificate of Wealth Management.
It is clear from the evidence including the full details of the courses and subjects that the overall content of both courses was at a level well beyond those that would be relevant to the duties of Ms Yan in her employment with Arthur Murray. While it is accepted that some part of these studies may have allowed her to be more efficient in her work, the expenses claimed are very much of the nature of those disallowed by the High Court in Hatchett's case (supra) where Menzies J said: