Not all self-education expenses are created equal – a reminder from Khan and Commissioner of Taxation

By Andrew Henshaw and Fiona Bucknall, Velocity Legal 

Wanting to claim a tax deduction for self-education expenses? Unfortunately, not all self-education expenses are created equal.

The recent Administrative Appeals Tribunal (AAT) decision in Khan and Commissioner of Taxation [2021] AATA 367 (Khan) is a timely reminder that:

1. self-education expenses are only deductible if they are incurred in the course of ‘gaining or producing assessable income’;

2. whether an expense is incurred in the course of ‘gaining or producing assessable income’ can be a vexed question, particularly where a taxpayer has either lost their job or changed their job around the time of incurring self-education expenses; and

3. there is a need for law reform regarding deductions for education expenses – particularly where retraining and reskilling is concerned.

The key facts, outcome and takeaways of Khan are set out below.

Employment with Emirates and Etihad

The taxpayer (Mr. Khan) worked as an aircraft maintenance technician at Emirates from 2004 until late 2016. During his employment, Emirates had declined to pay for various additional training requested by Mr. Khan and rejected his requests for unpaid leave to attend training courses.

On 1 September 2016, Emirates terminated the taxpayer’s employment on the basis of gross misconduct. The taxpayer then made an unfair dismissal claim with the Fair Work Commission alleging his dismissal was unfair. The parties came to a release agreement on 4 November 2016 (Release Agreement). As part of the Release Agreement, Emirates agreed to pay Mr. Khan a sum of money for general damages plus an ex-gratia termination payment. Further, the Release Agreement provided that Mr. Khan’s employment was deemed to have ended by resignation.

After enrolling in and completing a number of training courses, the taxpayer subsequently obtained employment as a newly-qualified aircraft maintenance engineer with Etihad Airways.

Training Expenses

Mr. Khan claimed deductions for self-education expenses incurred on 5 September 2016, 17 November 2016 and 3 February 2017 relating to various aircraft engineering courses.

The Commissioner of Taxation disallowed the above claimed deductions, as well as a subsequent objection lodged by the taxpayer.

Nexus between Training Expenses and Income

Pursuant to section 8-1 of the Income Tax Assessment Act 1997 (Cth), training expenses are only deductible if they were incurred in gaining or producing the taxpayer’s assessable income.

The ATO’s views regarding the deductibility of self-education expenses are set out in Taxation Ruling TR 98/9, which relevantly provides that:

self-education expenses are deductible under section 8-1 where they have a relevant connection to the taxpayer’s current income-earning activities…The fact that the study will enable a taxpayer to get employment [or] to obtain new employment…is not a sufficient basis in itself for self-education expenses to be deductible.

In other words, a clear nexus must be present between the ‘expense’ and the taxpayer’s income earned from their current place of employment.

Deductibility of Training Expenses in Khan

During the AAT hearing, the taxpayer appears to have conceded that his expenses incurred after 4 November 2016 were not deductible (given that he was not employed by either Emirates or Etihad at that time). This was despite the fact that, in a more general sense, the costs Mr. Khan incurred improved his employability and earning potential, as demonstrated by his eventual employment with Etihad.

In relation to the course enrolment fees incurred on 5 September 2016, the taxpayer argued that they were deductible on the basis that:

1. he did not receive the termination letter from Emirates until 6 September 2016, and that his employment was therefore still on foot at the time he enrolled in the courses. The Tribunal did not accept this based on the evidence presented; and

2. the Release Agreement negated the termination of his employment, thereby meaning that Mr. Khan was still an employee up until 4 November 2016. The AAT was not convinced by this either. They found that the Release Agreement only changed the character of the end of Mr. Khan’s employment, not the date on which his employment ended.

Nevertheless, the AAT determined that even if the taxpayer was technically still an employee as at 5 September 2016, the self-education expenses were not deductible.

This is because the mere existence of an employment relationship is insufficient to render self-education expenditure deductible. There must not only be an existing employment relationship at the time the expenditure is incurred, but there also must be a ‘perceived connection between the outgoing and production of assessable income’.

Applying this to the taxpayer’s circumstances, the AAT found that Mr. Khan did not incur the expenses related to the training courses to benefit from his new skills in his existing employment. It was clear on the evidence that at the time Mr. Khan enrolled in the courses, his employment with Emirates, even if it was not yet terminated, was in the process of coming to an end. Further to this, Emirates demonstrated an unwillingness to grant him leave to attend courses in the past.

As a result, the AAT found that Mr. Khan had no reasonable expectation that Emirates would grant him unpaid leave to attend the courses, or that he might derive income from Emirates from the skills he would acquire. This is despite the fact that, at the time Mr. Khan enrolled in the courses, he did have a reasonable expectation that they would improve his earning potential and lead to future income – just not necessarily at Emirates. Unfortunately, this meant that Mr. Khan’s course enrolment and attendance costs were not deductible as they did not satisfy the requirements of section 8-1.

Summary and key takeaways for taxpayers

Khan is a reminder of the narrowness and potential unfairness regarding self-education expense deductions. If the taxpayer stayed with Emirates, the costs would have likely been deductible. Alternatively, if the taxpayer incurred the costs after commencing employment with Etihad, the costs would have likely been deductible. Unfortunately, Mr. Khan fell in no man’s land.

This decision reiterates the somewhat arbitrary categorisation of self-education expenses as deductible or non-deductible depending on the taxpayer’s employment status and expectations at the time they are incurred. The current legal position allows the presently employed to deduct self-education expenses that have sufficient nexus to their employment, while taxpayers who are employed but without a sufficient nexus and taxpayers who are unemployed at the time of incurring those expenses are denied a deduction.

In the context of the current economic climate, and the value of promoting retraining and reskilling the workforce, the requirement of a connection between self-education expenses and current employment seems in dire need of reform. In the 2020-2021 Budget, the Federal Government announced that it would consult on allowing individuals to deduct education and training expenses in the absence of a relationship with their current employer. This consultation period ended on 22 January 2021. We will continue to watch this space to see whether the Government takes further steps towards making sure all self-education expenses are created equal.


Insight Authors…


Managing Director

Andrew acts for a diverse range of private businesses, high net-wealth individuals and family groups. He specialises in business structuring, tax disputes and complex tax issues. He is passionate about leading by example, getting wins for his clients, solving difficult legal issues and … snowboarding!




Having just completed her law degree at Monash University, Fiona is an energetic self-starter who thrives on problem-solving. With a particular interest in employment law and litigation, Fiona is competent in researching complex legal issues and drafting technical advice. Fiona also has practice and business management experience and is a planner at heart. Outside of work, she is always planning her next big adventure, whether it’s to Bosnia or Bright.


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