ap25003

Was there a loss or outgoing?

Yes, money was spent to buy them

Was it incurred in gaining or producing assessable income?

Yes, tools are used in the processes giving rise to the income

Did it have a capital nature?

It all depends ... Some tools will be replaced regularly but others will endure for the benefit of the trade or business - they will be once off expenses of a capital nature. If the expense is capital, a deduction for depreciation will be allowed but a discussion of that can wait for now

Did it have a private or domestic nature?

Obviously not

Deductions for tools, reference books

Expenditure on tools by a tradesman-would sec 8-1 allow a deduction?

Perhaps the most obvious example of deductible expenditure first - tools.

We will work through the questions to assure ourselves that sec 8-1 applies to the outgoings for tools

Expenditure on tools by a tradesman

Would sec 8-1 allow a deduction?

Expenditure on tools by a tradesman-would sec 8-1 allow a deduction?

This would be a capital outgoing

Tools are used in a physical manner in the processes producing the income. The relationship is very direct - our next outgoing is not quite so directly used in the income producing processes.... This is reference books think for a moment how we can say that reference books are used in the income producing process

Deduction for reference books

A taxpayer reads a reference book and absorbs the information contained in it. He then draws upon his recollection of that knowledge in performing his tasks the relationship between the books and the processes giving rise to his income is more remote or problematical.

The more remote the connection, the more difficult it is to show that the essential character of the outgoing is that of expenditure incurred in gaining income

Could a mechanic claim a deduction for the cost of motoring magazines?

*Was there a loss or outgoing?*			Yes, money was spent to buy them
	Was it incurred in gaining or producing assessable income?	Not really. The mechanic will be better informed about cars that are available. But the knowledge upon which he draws in gaining his income will be too technical for these publications. The connection with his activities is too remote to say the essential character of the expenditure is that of outgoings incurred in gaining income the deduction would not be allowed
There is no point going on any further with sec 8-1 - no deduction can be allowed even if the expenditure 'passed' the negative tests.

*Connection between outgoin*g and production of income
Direct connection used directly in processes	connection less direct - drawn upon indirectly in process	remote problematic - some vague connection	no connection prerequisite

Tools	books	newspapers	Child minding

What about the cost of weekly news magazines for a school teacher?

*Was there a loss or outgoing?*			Yes, money was spent to buy them
	Was it incurred in gaining or producing assessable income?	Not really Once again, though reading them will make him better informed, the coverage will be too general to be said to be part of the knowledge upon which he draws in the activities giving rise to his income.
There is no point going on any further with sec 8-1 - no deduction can be allowed even if the expenditure 'passed' the negative tests.

The deduction will not be allowed

What about the cost of text books for a teacher???

*Was there a loss or outgoing?*					Yes, money was spent to buy them
	Was it incurred in gaining or producing assessable income?	Yes...He will be drawing upon the knowledge contained in these books in preparing his lessons
		Did it have a capital nature?	It all depends ... Some books will be replaced regularly but others will endure for the benefit of the profession - they will be once off expenses of a capital nature. If the expense is capital, a deduction for depreciation will be allowed but a discussion of that can wait for now
			Did it have a private or domestic nature?	Obviously not