Deducting books

[geoffw]

My accountant is suggesting that books I wish to claim as deductions may not be deductible. The suggestion is that because they're about building wealth (eg, Jan Somers' book) that they we feel most of the investment books and journals are capital related rather than income related as they are concerned with building wealth. We are hesitant to claim the most of these costs.What?

Our net income from investment properties is larger than MrsW's income- can they really say that that these books are capital related?

(API magazine is the chief journal I have claimed).

It's peanuts stuff- but if might affect other things as well- perhaps seminars, for instance.

The books I've been questioned on are:

More Wealth from Residential Property
New Rooms (renovation ideas)
It's easy to be Property Multimillionaire
Real Money Real Estate
Building Wealth Story by Story
How to maximise your property portfolio

[Aceyducey]

Geoff,

Write an article on investing for a publication. If possible write a review or two of these books. Get paid for it.

They then become a deduction for you.

I only have to write one game review a year to count all my game purchases as tax deductible (one of the few reasons I do it - game mags pay a pittance).

Cheers,

Aceyducey

[ocelad]

I only have to write one game review a year to count all my game purchases as tax deductible (one of the few reasons I do it - game mags pay a pittance).

Aceducey

Not terribly ethical, is it? You may be able to get away with this, but IMHO it's certainly not within the spirit of the law.

Cheers

ocelad

[geoffw]

In this case, I'd have to write an article retrospectively.

[DaleGG]

Hi Geoff

I would not agree with your accountant. Books are a small cost item and always have been written off in the year of purchase.

Dale

[Aceyducey]

Not terribly ethical, is it? You may be able to get away with this, but IMHO it's certainly not within the spirit of the law.Hey Ocelad

I don't think that ethics is a consideration in paying tax.

Honesty & abiding by the laws are.

If the law says you can claim the deduction, you can claim the deduction. There's no 'spirit' involved in this case as tax laws are designed to be black & white.

Any spirit would be - tax minimisation is OK, but tax avoidance is not. This fits into the first category!

Ocelad, in any event, who's qualified to decide that you don't actually need input from a great number of sources before being able to write this type of article (or for that matter develop a product/provide a service/etc)?

I know that if I don't keep up to-date with the development of games across-the-board I wouldn't be able to write effectively & thus would not get paid.

Equally if you don't keep up to date with the latest gardening technologies you become an unemployable gardener - so this principle applies across the board.

Cheers,

Aceyducey

[Corsa]

My accountant is suggesting that books I wish to claim as deductions may not be deductible. The suggestion is that because they're about building wealth (eg, Jan Somers' book) that they What?

Hi Geoff

This is my interpretation with reference to the taxation legislation, hope this helps:

Subscriptions to technical, scientific, trade, business or professional journals, information services, newspapers and magazines are deductible provided the subscriptions relate tot he production of the taxpayers assessable income (ITAA97 - sec 8-1).

Using this legislation guidance, your API subscriptions would be deductible.

Self education expenses (ie tuition fees, textbooks, and travel and living expenses incurred in attending conferences, seminars or educational institutions) are deductible under ITAA97 sec 8-1 whre the expenses have a necessary connection with the production of income.

Using this legislation guidance, the cost of attending self educational courses etc would be deductible.


The following principles govern deductibility of self education expenses:

(1) The cost of acquiring knowledge is never an outgoing of capital (Finn Case)
(2) Expenses incurred in keeping up to date or to better enable the taxpayer to discharge existing duties or to earn present income may be deductible
(3) Where (2) does not apply and a new or further qualification is sought, there must be at least a higher probability that it will lead to an increase of earnings if the cost is to be deductible
(4) No deduction is allowable for self education where the study is to enable a taxpayer to get employment or obtain new employment.

Where these characteristics are met then the following is considered deductible:
-tuition or course fees
-textbookds, professional and trade journals and photocopying
-travel fares
-motor vehicle
-interest on borrowed monies

In your case, I would have thought that the books you have bought, in conjunction with your current investment activities, that these were expenses you incurred to keep up to date or better enable your investment activities to generate income.

The only reason I could say that they would not be considered deductible for eg, your purchased a book or went on a course on "how to trade share options" and you dont currently engage in that activity to generate income. But after you started trading in share options, the subsequent purchases would be deductible.

Therefore, using this interpretation, the books would be deductible.

With tax, there is always some degree of interpretation using the legislation, but perhaps your next steps needs to be to discuss with your accountant to help him/her understand that you incurred these expenses in relation to the production of income. If you help them understand the connection with income and perhaps some of the above, then your accoutant may feel more comfortable endorsing the claims.

I hope this helps Geoff

Cheers

Corsa

[Aceyducey]

...to the production of the taxpayers assessable income...

...a necessary connection with the production of income.One comment on this - you have to be generating income, NOT losses.

If you are losing money (ie: negative gearing or stock trading losses) you may not have such a good case ;)

Also if you are generating profits within a trust that are not distributed as (assessable) income there is an argument that expenses incurred in self-education are not deductible, as there's no assessable income resulting from them.

Cheers,

Aceyducey

[Corsa]

One comment on this - you have to be generating income, NOT losses.

If you are losing money (ie: negative gearing or stock trading losses) you may not have such a good case ;)

Also if you are generating profits within a trust that are not distributed as (assessable) income there is an argument that expenses incurred in self-education are not deductible, as there's no assessable income resulting from them.

Cheers,

Aceyducey

Hi Acey

I am not sure what you mean by your post....

As long as you can establish a nexus with the generation of income, even if your deductions exceed your income generated, and you generate an overall loss, then the basis for the deductions still stands, that is they are still deductible.

Relating to the second part of your post regarding when the Trust does not distribute profits, and there is no taxpayer assessable income, and you cant establish the nexus with the production of income, then the deductions are therefore not available.

Cheers

Corsa

[duncan_m]

Hi Acey
As long as you can establish a nexus with the generation of income, even if your deductions exceed your income generated, and you generate an overall loss, then the basis for the deductions still stands, that is they are still deductible.



Hi Corsa,

When does the Non Commercial Loss Legislation apply?

If I bought 1-2 books a year and deducted them against an activity that was generating next to no income wouldn't that be considered a Non Commercial Loss and the loss would have to be carried forward for offset against future profits that that activity may or may not make?

[Corsa]

Hi Corsa,

When does the Non Commercial Loss Legislation apply?

If I bought 1-2 books a year and deducted them against an activity that was generating next to no income wouldn't that be considered a Non Commercial Loss and the loss would have to be carried forward for offset against future profits that that activity may or may not make?

Hi Duncan

Non Commerical loss legislation applies from the 2000/2001 Income year. Under these measures, losses that cannot be offset against other income in the year in which they arise may be carried forward to be offset in a future year when there is a profit from the non commerical activity.

Generally, this loss is carried forward to the next year, or the next income year, whichever is applicable.

Note that this measure applies to a business activity carried out by an individual not a trust.

Hope this helps

Cheers

Corsa

[duncan_m]

Hi Duncan

Note that this measure applies to a business activity carried out by an individual not a trust.

Hope this helps

Cheers

Corsa


Thanks! That makes it clear, I never realised it was an 'individual only' thing.

[geoffw]

Corsa,
A very thorough explanation- thanks.

I will see later today what the accountant will be including in the return.

[geoffw]

BTW, I did have the thought that an item used to educate myself in an activity I did not already take part in, might be claimabale by the family trust if not claimable by myself?

[Corsa]

BTW, I did have the thought that an item used to educate myself in an activity I did not already take part in, might be claimabale by the family trust if not claimable by myself?

Hey Geoff

Thanks for your post, I appreciate it.

In respect of claiming the item by the Family Trust, effectively the general rule is all deductions for expenses which would be available if a resident taxpayer had derived the trust's assessable income are taken into account in calculating the net income of a trust.

So in your case, if an expense has been incurred by the trust in the production of assessable income for the trust then it would be deductible.

It looks and sounds like you have a few options, good luck with your meeting with your accountant today

Cheers

Corsa

[ocelad]

Aceyducey

I don't think that ethics is a consideration in paying tax… Honesty & abiding by the laws are.

I could not disagree more - ethical conduct applies to all aspects of life. For example, if the law stated it was legal to take possession of your neighbours’ belongings without their permission, would you? After all, it would be “abiding by the law”. Most people, I suggest, would not on moral grounds. So why should these same principles not apply in relation to taxation? How can you ‘pick and choose’ when to apply them?


There's no 'spirit' involved in this case as tax laws are designed to be black & white.

Tax laws may be designed to be black and white; however grey areas abound. Some of these areas are certainly where one's morals can come into play.


... in any event, who's qualified to decide that you don't actually need input from a great number of sources before being able to write this type of article (or for that matter develop a product/provide a service/etc)?

I know that if I don't keep up to-date with the development of games across-the-board I wouldn't be able to write effectively & thus would not get paid.

Agreed. However it is the motive that I consider important. Are you claiming a deduction for legitimate research or simply using game reviewing as a guise for acquiring games at effectively discounted prices? (I have no idea how many reviews you actually write; however in your previous post you mention you only have to write one to qualify for the deduction. You also refer to the "pittance" that is paid, implying you may not necessarily be doing this for the money.


Equally if you don't keep up to date with the latest gardening technologies you become an unemployable gardener - so this principle applies across the board.

If we apply the same logic, it could be argued that mowing one or two lawns per year does not make someone a gardener. (I have no problems with someone claiming such expenses if they are obviously attempting to derive a reasonable income through such activities).

Cheers

ocelad

[Aceyducey]

Agreed. However it is the motive that I consider important. Are you claiming a deduction for legitimate research or simply using game reviewing as a guise for acquiring games at effectively discounted prices?Focusing back in on the sharp point of the discussion.

Legitimite research & buying discounted games to play are not mutually exclusive :)

Personally I'm very comfortable in the knowledge that if I don't play a number of games each year I don't have the qualifications to review even one game.

And I'm also very comfortable knowing that the government shares my view that doing extensive research and self-education is required to perform certain tasks.

From my point of view it would be UNETHICAL to review games if I didn't play them extensively AND ENJOY THEM. The people who read what I write deserve better than that!

So therefore I'm very confortable that I pursue an ethical course!

Ocelad, would you feel it was ethical for you to review a game for a publication with tens of thousands of readers if you HADN'T played a number of games and enjoyed them?

Would YOU choose to claim the deduction on the games you bought to play?

Cheers,

Aceyducey

[handyandy]

Hi Geoff


Maybe it is time to find a new accountant!!!! :( Possibly he is alos not doing the best for you in other areas.

Ocelad, as far as 'the spirit' goes the only spirit I am interested in the the stuff that comes out of a bottle.:D (I actually drink very little)

I have no problem with working within the law but when you then imply that you put other ristriction on yourself because of what other people think and should do then really you are doing yourself a disservice. IMHO you will be limiting your true potential as the meek will not inherite the earth.

Cheers

[rodimus]

can i claim unclaimed tax deductible stuff from last year that i didnt?

There are books and programs that i can deduct last year, but didnt i didnt know better?

Being an avid reader, I buy hundreds of books each year, mainly on business, property, investing, wealth, psychology, etc.

[DaleGG]

can i claim unclaimed tax deductible stuff from last year that i didnt?

There are books and programs that i can deduct last year, but didnt i didnt know better?

Being an avid reader, I buy hundreds of books each year, mainly on business, property, investing, wealth, psychology, etc.

Hi

No, you can only claim costs in the year that the money wa spent. Therefore, if you would still like to claim these costs you would need to amend the previous tax return to include them. This is easy enough to do and should not create problems.

Dale

[ocelad]

Aceyducey

Legitimite research & buying discounted games to play are not mutually exclusive :)

No, provided the games relate to income-producing activities. As I said before, I am not questioning the legalities of the deduction.


Personally I'm very comfortable in the knowledge that if I don't play a number of games each year I don't have the qualifications to review even one game.

And I'm also very comfortable knowing that the government shares my view that doing extensive research and self-education is required to perform certain tasks.

From my point of view it would be UNETHICAL to review games if I didn't play them extensively AND ENJOY THEM. The people who read what I write deserve better than that!

No arguments here, although I don’t believe you have to enjoy a game to be able to review it. Who has enjoyed every game they’ve ever played?


Ocelad, would you feel it was ethical for you to review a game for a publication with tens of thousands of readers if you HADN'T played a number of games and enjoyed them?

Absolutely not.


Would YOU choose to claim the deduction on the games you bought to play?

No. As I made quite clear in my previous post, if I am not deriving a substantial income from this activity and primarily purchased the games for private enjoyment, I would not. And as I said before, in my opinion it is the motive that counts. Reviewing a few games a year for “a pittance” sounds suspiciously like a hobby to me.

Cheers

ocelad

[ocelad]

Ocelad, as far as 'the spirit' goes the only spirit I am interested in the the stuff that comes out of a bottle.:D (I actually drink very little)

Handyandy

As someone famous once said somewhere (can't remember who / where / when), "I don't drink but I've been meaning to start" :D

I have no problem with working within the law but when you then imply that you put other ristriction on yourself because of what other people think and should do then really you are doing yourself a disservice. IMHO you will be limiting your true potential as the meek will not inherite the earth.

Yes, it is a restriction; however it is not driven by a fear of what other people think. I simply believe in this case there is a distinction between what is legal and what is morally right.

Cheers

ocelad

[Aceyducey]

As I made quite clear in my previous post, if I am not deriving a substantial income from this activity and primarily purchased the games for private enjoyment, I would not. And as I said before, in my opinion it is the motive that counts. Reviewing a few games a year for “a pittance” sounds suspiciously like a hobby to me.Three final points:

1. Just because you may not be paid well for each review/guide/walkthrough doesn't mean you shouldn't put out best endeavours for the audience. To do less would be unethical - thus playing many games is mandatory. If you don't enjoy the games and the process of reviewing (both) don't do it - you'll not providing the service.

2. Hobbies have value too! If you're judging ethics based purely on financial remuneration then I'd say your ethical feet are made out of clay.

My son's soccer coach gets paid very little for coaching my son, however I'd still expect him to behave ethically by being the best coach he can be - and are happy for him to claim tax deductions on soccer-related material as allowed by the government. He influences a great deal LESS people than one game review.

3. If your primary reason for going to work each day isn't enjoyment, you're not going to provide the best results for your employer or customers.

You should NEVER work in a job where your primary driver is need for money, it's unhealthy and unethical!

Many people would say it's impossible to do otherwise...mostly because they are in a comfort zone or lack the confidence to take certain risks. If they were pushed (ie sacked) I'm certain they could all find roles more to their liking, provided they were realistic about what they enjoy (yes everyone 'enjoys' the idea of being a movie star....but not everyone would get joy from it).


I'd be careful about this line of your reasoning....atm Ocelad you're saying it's only ethical to claim tax deductions (and I dare say other things) if you aren't primarily doing your job because you enjoy it.

You're also saying that if enjoyment is your primary reason for working in a particular occupation and you're being paid substantially less (aka 'a pittance') than you could in another profession that you would NOT enjoy then it is UNETHICAL to claim legal tax deductions!

This is the kind of institutionalised backwards reasoning that leads to so many people being exploited and unhappy in the workforce.

Rethink your premises.

Start from the principle that personal happiness & health are paramount and that societies exists to provide a legitimite (aka: agreed to) framework for every individual to achieve these goals while providing for the compromises required to safeguard the need/rights of others to achieve the same goals.

Cheers,

Aceyducey

[geoffw]

Maybe it is time to find a new accountant!!!! :( Possibly he is alos not doing the best for you in other areas.My accountant has come back to me- suggesting that it is wise not to try to claim the books and journals I have included on my list (as well as the much more expensive seminars) because of a case where a person who owned NRMA shares was disallowed a subscription to a share investment journal because it did not directly concern her holding in that single company. The statement was offered, that unless one is in the business of xxx, one cannot claim the cost of a book or seminar on the topic of xxx. In my case, my salary is derived from IT- so a course to learn new skills in IT is OK- but a course or a book to learn new skills is not, as I am not in the property investment business.

The accountant did tell me that, if I could present a compelling case, he would claim these items.

To me, the fact that my gross income form rents is more than 50% of my gross wage (and exceeds MrsW's income) I thought may be construed as compelling.

However-

1. I have had problems in the past by an aggressive tax planner. I don't want to go that way again. In some ways, a very conervative approach may help me to avoid potential problems caused by having become a potential ATO target

2. I am in a position to shift these deductions to my family trust. The trust is in the business of proerty investment- so there is no question as to deductability. It may take me a few years to get the benefit (trust's expenses are greater than income when deprfeciation is included) but that loss can be carried forward.

[ocelad]

Just because you may not be paid well for each review/guide/walkthrough doesn't mean you shouldn't put out best endeavours for the audience. To do less would be unethical - thus playing many games is mandatory.

Agreed. I haven’t argued otherwise.

If you don't enjoy the games and the process of reviewing (both) don't do it - you'll not providing the service.

I agree you should enjoy the process; however as stated in a previous post I don’t agree you can enjoy every game you play. And that’s partly what reviewing is about – providing a (subjective) critique.

Or would you only review a game you enjoyed?

Hobbies have value too! If you're judging ethics based purely on financial remuneration then I'd say your ethical feet are made out of clay.

Of course hobbies have value – that’s why people actively pursue them. As I stated before, my issue relates not to the hobby as such but rather to the use of the tax system to fund such activities under the guise of an income-producing activity.

I was under the impression any income from a hobby was non-taxable. Therefore I find it interesting you are suggesting you can claim such expenses.

You say you only have to write one review to qualify for deductions on all of your game purchases… sounds like a loss-producing activity to me, especially given the cost of the latest games these days. (You would only be purchasing the latest releases in order to keep up-to-date, wouldn’t you?) Sounds very much akin to a hobby, actually.

Do you recall the Tax Office’s crackdown on ‘hobby’ farmers several years ago? Perhaps it’s time for a review of ‘hobby gamers’…


I'd be careful about this line of your reasoning....atm Ocelad you're saying it's only ethical to claim tax deductions (and I dare say other things) if you aren't primarily doing your job because you enjoy it.

Incorrect – you’ve misunderstood what I have written. The whole issue centres around the claiming of tax deductions relating to a hobby.

You’re also saying that if enjoyment is your primary reason for working in a particular occupation and you're being paid substantially less (aka 'a pittance') than you could in another profession that you would NOT enjoy then it is UNETHICAL to claim legal tax deductions!

Once again that’s a misrepresentation.

In your first post, apart from the ‘pittance’ (your term) derived from game reviewing you clearly stated you only had to write one review to claim deductions for all of your game purchases. Doesn’t sound like ‘working in a particular occupation’ to me. Sounds like a hobby.

Rethink your premises. Start from the principle that personal happiness & health are paramount and that societies exists to provide a legitimite (aka: agreed to) framework for every individual to achieve these goals while providing for the compromises required to safeguard the need/rights of others to achieve the same goals.

I don’t have to rethink any premises – you need to reread what I have written more carefully.

And I assume the ‘legitimate framework’ to which you're referring includes the Tax Act. Unfortunately, as we all know, a substantial amount of tax law is open to ‘bending the rules’ for purposes other than which it was truly designed (ie the 'spirit' of the law).

Cheers

ocelad

[Corsa]

The accountant did tell me that, if I could present a compelling case, he would claim these items.

Hi Geoff

Just to follow-up on this post, "generally" carrying on a business can be determined by a number of factors. These are:

profitability - the fact that a profit is being made is a strong indication that a business is being carried on. However the lack of profit does not necessarily mean that there is no business

size - the bigger the operations, the more likely it is that there is a business being carried on

effort - if the activities involve a substantial and regular effort over a period of time, they are more likely to constitute a business. However, it is possible to carry on a business as a part-time sideline to the taxpayers main activities. Simarily a single transaction can amount to the carrying on of a business if it results from a concerted effort, especially if it is connected in some way with the taxpayers normal business activities. Apart from this, however the mere realisation of capital assets would not normally consitute a business

business records - if detailed business records are kep, this is a strong pointer to the existance of a business. The lack of records is a common weakness in cases presented by persons seeking to obtain deductions for losses incurred from their alleged business activities.

From my understanding of your situation (from memory of your posts):
-you may or not make a profit from your properties
-the gross rent is half that of your salary and exceeds your wifes.
-You have a block of flats and a couple of other properties which is substantial in size - compared to the average joe bloe
-you manage at least the block of flats on your own (i think..) which would involve a considerable amount of effort
-you probably keep at least ok records

Your main activites are in IT and you carry on a part time business in investing in rental properties.

Without getting involved necessarily in the Aceyducy/Oclead side posts, the fact that Aceyducy only has one game review a year does not preclude the fact that Aceyducy is carrying on a business of gaming (refer to effort - single transaction comment)

Geoff, even if you go through each of these criteria yourself for carrying on a business, I am confident that you could justify this claim.

However I understand your fears of a tax audit and hence your reluctance to push this issue. It some ways that is a shame, as you probably have a fair right of claim in this case..but if you can claim it through the trust then thats fair enough.

The last point I wanted to say, is you have indicated that in some ways your accountant having a very conservative approach may help you avoid potential problems by becoming an ATO target...well I am not sure on your total situation but having an accountant that cannot see that this is a claim is a bit of warning sign to me, conservative is good, but not too conservative. You dont want other valid claims being dismissed and not always will you be able to rely on the trust. Plus your accountant should have audit insurance, if they let the claim go through and you get a tax audit and it is found to be non claimable then the accountant should also be protected.

Good luck with this, I hope it all works out

Cheers

Corsa