Deductions: expenses in updating and revising a book

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?

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.

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.

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

In the circumstances the Tribunal found that the expenses the taxpayer incurred in revising and updating the book were incurred in the course of earning their assessable income. They were incidental and relevant to that end.

In deciding that the expenses were not capital expenditure, the Tribunal stated: The items involved are not in their nature items of capital expenditure. They are not directed to the construction of a capital asset, even though one may result incidentally from the expenditure of the amounts claimed. The expenses have the classical revenue characteristics referred to by Dixon J in Sun Newspapers Limited v FC of T (1938) 5 ATD 23; (1938) 61 CLR 337 as being recurrent, repeated, or continual.

The circumstances here are similar to those of the taxpayer in Case 55/95 . The expenses were incurred by the taxpayer in maintaining the book in an up-to-date state for the purpose of continuing to earn assessable income from royalties. There is a clear nexus between the expenditure and the production of assessable income. The expenses are not of a capital nature. They are incurred periodically for the advantage of earning the royalty income for a limited time and are therefore part of an ongoing process of earning 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.

Date of Amendment Part Comment 24 March 2016 Reasons for Decision Amended for clarity and to reflect changes in the relevant legislation.

Date of Amendment | Part | Comment

24 March 2016 | Reasons for Decision | Amended for clarity and to reflect changes in the relevant legislation.