737 Endoresment - Tax Deductible? No!

[Airspeed Ambassador]

737 Endorsement - Tax Deductible? No!

For those of you contemplating a job with Virgin Blue, be aware that the cost of your endorsement is more than likely not going to be a deductible expense.

I wouldn't think it's going to stop anyone accepting a job with DJ, but don't go in blind thinking that you are going to get some of your hard earned money back from the government. It might not be so!

Below is a link to the "Interpretative Decisions" section of the ATO website. It contains the ATO interpretation on the deductibility of an aircraft endorsement.

http://law.ato.gov.au/atolaw/index.htm

Click on the following links to get there; (if anyone is clever enough to provide the direct link, be my guest)

"ATO Interpretative Decisions"
"By Topic"
"Deductions and expenses"
ATO ID 2002/502 Self education expenses - upgrade of pilot's licence to obtain new employment

Seek advise before resigning from your old job!

AA

[redsnail]

2002/502

Interesting. I dare say that a good accountant could argue against that one. There looks like a few little holes that could be exploited if your accountant/lawyer is smart and you act before you spend a cent/leave your old job.

[FarQ2]

Well AA I would suggest that you forget Virgin as your definitely not Command Material, you have to think outside the square, who ever suggested that you would upfront tell those morons in the ATO exactly what you are doing. You are either immature or a nerd my boy - tell those f#$%kers nothing smother them in BS.

Go get your B737 rating it is a stationery expense which can be justified no problem as the end result is that as a result of the expenditure you earn a taxable income - end of story.

Get a good accountant sunshine! spend a $ to save $2

[ITCZ]

From that site:
Although the taxpayer was already employed as a pilot, the study was designed to enable the taxpayer to obtain new employment and did not relate to their current income earning activities. Therefore, the expenditure was incurred at a point too soon to be regarded as incurred in gaining or producing assessable income and is not an allowable deduction under section 8-1 of the ITAA 1997.

I dont think this is an issue where you should have to 'scam' it or 'keep it quiet,' it simply sounds to me like somebody's accountant did not present their case very well, and should have their @rse kicked/be sued for negligence.

Just have a look at the other "Self Education Expense" rulings on the same page. F'rinstance, the heavy vehicle mechanic that did a heavy vehicle driver training course.... The manager that did a personal development course.... Read the rationale and see the difference in how it was presented...


Jet conversion training was paid for by the employer in the good old days, and as such it fell under training costs in the balance sheet -- a deduction. The ATO is not missing out on any taxation income. The burden has simply shifted from the operator to the individual. Nothing dishonest in seeking a deduction in my book.

So, provided you had an accountant that was worth his/her fee, then:

For a chicken plucker to do an ab initio pilot course would not be deductible.

For a chieftain pilot on bush CHTR to do a 737 course would probably be stretching the definition. VFR v IFR, single pilot v multicrew, p-charts v RTOW tables, A100 or lower v above F250 with O2 requirements, etc.

For a metro captain on RPT services (IFR, multicrew, above 5700, CAO 20.7.1B, in a 6 monthly base and/or sim checking and training environment, etc) learning to be a crew member on a 737, there should be arguably more SIMILARITIES than DIFFERENCES vv the two jobs.

For a 146 pilot going to the 737, the differences would be laughable (W.R.T. the above legalese). Medium jet to medium jet in airline ops, one extra FA, two less engines.

Should be as deductable as an MBA or a B.Econ is for an ATO staffer.

Sounds like too many folk running around to a million different tax agents. One of them would have to stuff it up sooner or later, law of averages!

This topic is discussed in the latest Air Pilot (AFAP mag) in order that pilots get the best of the situation. Why not get the professional association to make a persistent and informed argument for you instead of a suburban tax accountant who cant tell an endorsement from a rating?

[Airspeed Ambassador]

Well thank you FarQ2 for your kind words of inspiration, your wit mixed with just a hint of arrogance.

Wow,” tell those f#$%kers nothing smother them in BS”, now who would have guessed the answer was so simple!

To Redsnail and ITCZ,

I agree wholeheartedly that the deducibility of the endorsement is very arguable. It would seem from the info that I have from the AFAP that the chronology of events (ie.“when” the endorsement is completed compared to finish and start dates with your old and new company) is what the ATO primarily focuses on. Broadly, there are three typical scenarios

1. While still with your old employer, you complete the endorsement, return to work for that employer and then resign at a later date.

2. While still with your old employer, you complete the endorsement and then immediately resign.

3. You complete the endorsement while unemployed or after resigning from your previous position.

As I understand the situation, some pilots who’s chronology of events matched No’s 2 and 3, have had unsuccessful private rulings against them. The AFAP is still testing scenario No 1 and believe it stands a better chance (my interpretation of their info).

The general advice I had before joining Virgin indicated no problems claiming a deduction so I completed my endorsement while on leave and then resigned. While there is a cloud over this whole issue, the point of posting was to alert others to seek advice before leaping in. It may save you some dollars.

AA

[The Spin Doctor]

I have claimed an endorsement (Kingair approx $8000) and been audited by the ATO, result= no problem
and I didn't have representation.

[clearleft]

VFR - IFR

What about if you work for a company as a VFR pilot, but thay also operate IFR aircraft. If you did the IFR rating on your own back, could you claim this additional training as well.

[GT-R]

clearleft, absolutely.

It is very clearly explained on the ATOassist website.

From memory, basically anything you do to gain promotion in your current job or to increase your salary in your current job is tax deductible.

Most important thing is IN YOUR CURRENT JOB though.

You cannot claim expenses for a B737 endorsement unless in the company you work for this will result in promotion / more pay.

[otto the grot]

Although the taxpayer was already employed as a pilot, the study was designed to enable the taxpayer to obtain new employment and did not relate to their current income earning activities.

It still seems to be a matter of interpretation. Is the phrase "current income earning activities" referring specifically to the employer you work for or, generally speaking, the line of work you are in (commercial pilot)?

I would have thought the latter.

Say for instence you hire a simulator to maintain I/F currency @ $100/hour. This is tax deductable.
Now say you hire a 747 simulator to do the same. No difference. Same out come is achieved, just at a much higher expenditure.
Now, say it took $20-30,000 to do the above currency work and you ended up with a 747 endorsement.
How can the ATO differentiate? A simulator is a simulator is'nt it?

[Checkerboard]

Now I was told a couple of years back by an accountant that I could not claim my ATPL course because I had a job in GA. I didnt claim it as a result.

Anyone care to comment????

[FarQ2]

OK I'll buy into this again "without the arrogance"

The Tax Act says somewhere in its 2,000,000 pages plus that if you have an expenditure related to an accessable income: therefore it is tax deductable expenditure.
i.e. you buy a B737 rating get a job with VB then IT IS DEDUCTABLE (I would say provided it occurred in the same financial year)

All I wanted to say was get a good accountant to argue the case, and use the ATOs own B...lS....t to beat them.

Which you can!

[Boomerang]

What about if you start your own business as a contract pilot, and do the endorsement then?

[404 Titan]

In my previous life before committing aviation, I use to be an accountant. I have also taken the ATO to court over work related self-education deductions in the past and won. The court case involved the deductibility of an instructor rating. In essence it must be directly related to your current employment. Therefore in my opinion and I suggest you also get the opinion of a taxation account, if your current employer doesn’t have a B737 it isn’t deductible. Likewise if you are unemployed and do the same rating and you then get a job with DJ it still isn’t deductible. My understanding with DJ is that they do not employ you until you pass the endorsement. I would be very careful claiming this deduction without professional advise and a ruling from the ATO. The amount you are claiming will set off alarm bells and you have a very good chance at being audited.

[Near Miss]

Had my claim for my ATPL course rejected by the ATO a few years ago.
As I was flying a PA 31 and did NOT need an ATPL for my current job, I could not claim. I understand it is the same for endorsements. ATO!
Would love to be proven wrong though.

PS Spin Doc, did the company you were working for have B200's? Or did you use it to get another job?

[ReadMyACARS]

Otto,
You could definitely claim sim time for your current endorsement, however you would not be able to claim the costs of a 747 sim check ride if it was not your current aircraft you earnt your income from.

However, if you worked for a company who told you you could fly the 747 if you paid for own endorsement and had a letter to substantiate this, this would be deductable as you would be doing it to earn a greater income.

RMA

[The Spin Doctor]

Near Miss - different company

Checkerboard- ATPL claim was same year with the same result, audit passed

[dwarfhunter]

May have changed, but a long time ago (more than 12 years), myself and a workmate both claimed our instructor ratings as Self Education. We were both employed by the company that taught us, after we completed the ratings. Both claims were successful.
However, my friend was audited and had to return his. I was never audited. We used different accountants. Mine also claimed a small amount for travel expenses during the course.
Before the training, I was unemployed and my friend was doing casual charter work.
On a slightly different note, recently had to contact the tax department re working overseas and not paying tax in OZ. Got two completely different answers from two people at the ATO. They have interpretation problems themselves.

[Hans Solo]

Okay,

Here's my two bobs worth with regard to this situation.

According to section 8-1 of the ITAA 1997; " If a 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, the self-education expenses are allowable as a deduction."

"No deduction is allowable for self-education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in businesss or in the taxpayers current employment).

This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income."

The High Court of Australia has ruled that the expenditure 'must have the essential character of an outgoing incurred in gaining assessable income'.
ie. 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...!

I think it can be argued that, providing you remain employed in your job whilst undertaking the course (remember you have not been employed by Vigin at this point, and in fact have no guarantee of a position with them in the future), and your current job entails the exercise and use of your CPL/ATPL in the pilotage of multi-engine IFR aircraft, then your course is based on the exercise of the same skills required to produce your current income, whilst the extra knowledge gained is used to enhance your professional knowledge in both specific and general areas of aviation.
In fact the the skills gained in passing the endorsement could be said to be more than usefull in maintaining a standard required to pass ones Command M/E IFR renewal, and thus may also come under the heading of TRAINING, which may also be deductible.

Case Examples:

In FC of T v. Finn the High Court held that expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was allowable under Section 8-1.
Judge Kitto found that the tour was incidental to the proper execution of the duties of Mr Finn's office because:

'Its professional status implied an obligation of professional aquaintance with a living and developing art. It was therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add ....to his knowledge and understanding of architectural achievments and trends overseas...'
Judge Windeyer of the Federal Court was of a similar view, stating that:
' a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurrs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurrs those expenses in carrying on his profession or calling.'

In Studdert v. ATO, the AAT (Admin. Appeals Tri) a flight engineer, sought a deduction for expenses incurred on light aircraft flying lessons, leading to a PPL.
The AAT allowed the claim on the basis that the lessons improved his proficiency in his duties.
On appeal to the Federal Court, Judge Hill substantially agreed with the decision of thE AAT.
The finding was based on the facts that undertaking the lessons made him better equipped to perform his skilled job and better proficiency was a motivation for undertaking the lessons.

Furthermore, in Studdert, Judge Hill also stated that an expense normally is allowable if it can be shown to contribute to increased income, but noted that such a finding is NOT a prerequisite for deductability (91 ATC at 5013-5014; 22 ATR at 770).

I'm starting to get Typers cramp, however you can see it is not a closed issue, don't give up just take the time to look into it.
It helps if you can find an accountant who is knowledgable in the practical aspects of aviation.
My experience of the ATO is if you can quote enough relevant case examples to be used as precedence and argue your case using their own tax rulings then you will have a better than even chance of winning.

Hope I've been of some help..

PS. Sorry about the Typos.(no time to proof read, must do own tax return........Groan....)


HANS.

[jetblues]

Hans Solo and others all very interesting and helpful. Can anyone point me in the direction of a good accountant in the Brisbane region who understands the bizzare world of aviation expenses ?

[Cpt Cook]

Could I get the name of that accountant too please.
Brisbane or Gold Coast area would be great.
[email protected]