ATO Interpretative Decision

ATO ID 2003/905

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer, an author of a published book, entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in updating and revising the book?

Decision

Yes. The taxpayer, an author of a published book, is entitled to a deduction under section 8-1 of the ITAA 1997 for expenses incurred in updating and revising the book, as the expenses were incurred in gaining or producing the taxpayer's assessable income from royalties.

Facts

The taxpayer is the author of a book that has been published.

The taxpayer receives royalties from sales of the book.

The taxpayer is required by their publisher to keep the book up to date.

In completing the required revisions, the taxpayer has incurred stationery and postage expenses, travel expenses and library expenses.

The taxpayer does not carry on a business of writing books.

The taxpayer's assessable income includes the royalties they receive, pursuant to section 15-20 of the ITAA 1997.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for a loss or outgoing to the extent it is incurred in gaining or producing assessable income and is not a loss or outgoing of capital, or of a capital, private or domestic nature, or is incurred in relation to gaining or producing exempt income.

The expenditure must be incurred in the course of gaining or producing assessable income. For expenditure to be regarded as being incurred in gaining or producing assessable income, it must be incidental and relevant to that end.

In Case 55/95 95 ATC 454; AAT Case 10,475 (1995) 31 ATR 1328 (Case 55/95) a taxpayer wrote a book about his experiences in a naval engagement during the Second World War. It was accepted that the taxpayer was not carrying on a business as an author. The taxpayer incurred expenses such as postage, stationery, telephone and travel expenses. The Administrative Appeals Tribunal found that the taxpayer was entitled to a deduction for these expenses as they were incurred in earning future royalty income.

The Tribunal found that:

In the present circumstances, there can be little doubt that the nature of the expenses, the subject of the claim, have the essential character of expenditure incurred in the course of gaining or producing what must be assumed to be assessable income. The essential character test is also applied to determine if expenditure is of a capital, private or domestic nature.

In the circumstances here, the taxpayer has incurred the expenses in revising and updating the book. It is accepted that the taxpayer has incurred the expenses in the course of earning their assessable income. The expenses were incidental and relevant to that end.

A deduction will be denied, however, if the expenses are of a capital, private or domestic nature. Again, the essential character of the expense is relevant. In Case 55/95 the expenses incurred by the taxpayer were of a similar nature to those incurred here. In deciding that the expenses were not of a capital, private or domestic nature the Tribunal found that they had the essential character of expenditure incurred in the course of gaining or producing assessable royalty income. The Tribunal rejected the Commissioner's argument that because the expenses were incurred in relation to the production of a book, copyright in which was owned by the taxpayer, this necessarily characterised the expenses as being of a capital nature.

The circumstances here are analogous to those of the taxpayer in Case 55/95. The expenses have the essential character as being expenses of a revenue nature which were incurred by the taxpayer in earning their assessable royalty income.

Accordingly, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for the writing expenses they have incurred.

Year of income:  Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   section 8-1
   section 15-20

Case References:
Case 55/95
   95 ATC 454

Keywords
Authors & writers
Royalties
Royalty income
Deductions and expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  3 October 2003

ISSN: 1445-2782