Edited version of private advice

Authorisation Number: 1012648768625

Ruling

Subject: Self education expenses

Question

Are you entitled to a deduction for self education expenses?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commences on

1 July 2013

Relevant facts and circumstances

You are an author and you work from home.

You do not have a formal business plan.

You are a member of several associations.

You have self-published a number short stories.

You have a contract with a publisher. You are entitled to X% of royalties on each book that is sold.

The publisher provides the art cover and editing of the novels. You are required to write and promote each book.

You do not incur any publishing costs.

You are completing a course of education about proofreading and editing.

You are in the process of obtaining an ABN for your activity.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Taxation Ruling TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge (FCT v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

However, paragraph 12 of TR 98/9 states that no deduction is allowable for self-education expenses if the study is to enable the taxpayer to get employment, obtain new employment or to open up a new income-earning activity (whether in business or the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field or employment in which the taxpayer is not yet engaged.

To determine whether the expenses incurred for your course of education are deductible, we must first consider whether your book writing activities are conducted as a business.

Business activity

Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

Taxation Ruling TR 97/11 provides the Commissioner's view of the factors used to determine if you are in business for tax purposes.

In the Commissioner's view, the factors that are considered important in determining the question of business activity are:

• whether the activity has a significant commercial purpose or character

• whether the taxpayer has more than just an intention to engage in business

• whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

• whether there is regularity and repetition of the activity

• whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business

• whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit

• the size, scale and permanency of the activity, and

• whether the activity is better described as a hobby, a form of recreation or sporting activity.

No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the large or general impression.

Application to your circumstances

Based on the information provided, we do not consider that the activity has the necessary characteristics of a business for taxation purposes. The activities have been conducted on an insufficient scale to be considered a business. Further, the activity does not have a significant commercial purpose; instead it has the nature of a recreational pursuit or hobby.

Therefore, any income you receive from the sale of the book will not be assessable as ordinary income under section 6-5 of the ITAA 1997. In addition, you cannot claim a deduction for the expenses you incurred in relation to your writing activities under section 8-1 of the ITAA 1997.

Even if we did consider your activities to be a business, the course of education you have undertaken is designed to enable you to obtain employment in a new role. In accordance with TR 98/9, no deduction would be allowable as the self education expenses have been incurred to enable you to obtain new employment or to open up a new income-earning activity.