Question

Henry, a tax resident of Australia, was a famous jazz singer who passed away recently. Jack, a publisher was interested on Henry's life story and wanted to write a bibliography on Henry's life. Jack approached Henry's wife, Jenny (also a tax resident of Australia) to interview her on Henry's life story. She was offered $1 million for Henry story. Jenny was paid $500,000 deposit before the interview. After the interview she was paid the balance of the money. Would the tax consequences have changed if Jenny had written the book herself? Required Advise Jenny on her tax consequences.

Follow ILAC model based on Australian legal environment

Answer 1

In the given case, Jack has approached deceased Henry's wife jenny to interview her on Henry's life story so that Jack could write a bibliography on Henry's life. Jenny was offered $1 million for the same and was paid $500,000 deposit before the interview and the balance amount after the interview. Here it may be assumed that Jack and Jenny have entered into a contract and thus while paying Jenny for the life story of her deceased husband Jack was laible to deduct the tax properly. If Jenny receives the whole amount i.e., without tax deduction, she would have to pay tax on income as per the applicable tax rates. In this case Jenny would not be able to set off her expenses against the income out of the story since it is not her business but a side income.

On the contrary, if Jenny herself had written the bibliography on Henry's life, it would have been her venture and the income she would gain from this would be eligible for expense deduction. Therefore, she would have to pay tax on the income remaining after set off of expenses. In this way she could save some tax amount on account of expenditure incurred to earn the income which is a common rule of business.

These are the tax consequences that Jenny could face.