12 August 1993 External T.I. 9309005 F - Inventory of a Writer

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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Attention:  XXXXXXXXXX

RE:  Subsections 10(6) and 10(8)

This is in response to your letter of March 29, 1993, wherein you requested the Department's confirmation that subsections 10(6) and 10(8) of the Income Tax Act (the "Act") would be applicable to the situation described in your letter. The situation described in your letter involves XXXXXXXXXX You have concluded that, in regard to the book, the individual is carrying on a business with a reasonable expectation of profit. Your concern is with the treatment of the printing costs associated with the book. Under generally accepted accounting principles these costs would be relevant in the determination of the cost of goods sold, and if the books are not sold at the year-end would be included in the calculation of ending inventory. It is your view that the election under the provisions of subsection 10(6) of the Act would be available to literary works such as those described in your letter.

Our Comments:

In your letter you have outlined what appears to be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of the District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. However, we can provide the following general comments.

In determining the value of inventory, subsection 10(1) of the Act provides that for the purpose of computing income from a business, the property described in an inventory shall be valued at its cost to the taxpayer or its fair market value, whichever is lower, or in such other manner as may be permitted by regulation. In addition, for the purpose of computing the income of an individual other than a trust for a taxation year from an artistic endeavour, subsection 10(6) of the Act allows the individual to make an election in his return of income for the year that would deem the value of his property in inventory for that year to be nil.

The expression "artistic endeavour" of an individual is defined in subsection 10(8) of the Act to mean the business of creating paintings, prints, etchings, drawings, sculptures or similar works of art, where such works of art are created by the individual, but does not include a business of reproducing works of art. Clearly, the business of writing books does not meet this definition and therefore, the election under subsection 10(6) would not be available to an individual that is a writer. This view is consistent with the comments found in Interpretation Bulletin IT-504R which deals with the determination of the income of a person who carries on a business, in a self-employed capacity, as a visual artist or as a writer. The comments in IT-504R concerning an Artist's Inventories do not apply to the inventory of a writer.

Allowing a self-employed writer, as you have suggested, to make the election under subsection 10(6) of the Act would require an amendment to the Act which falls under the responsibility of the Department of Finance ("Finance"). We have discussed this matter with Finance, however, should you wish to pursue this matter we would suggest that you write to Finance at the following address:

Tax Policy & Legislation Branch Department of Finance 140 O'Connor Street L'Esplanade Laurier 17th Floor, East Tower Ottawa, Ontario K1A 0G5

With respect to an employee, if a taxpayer was in receipt of income from an office or employment that included income from an artistic activity that was the composition by the taxpayer of a literary work, then in computing the taxpayers income for a taxation year from an office or employment the taxpayer may be able to deduct amounts paid by the taxpayer before the end of the year in respect of expenses incurred for the purpose of earning the income from that activity to the extent of the amount determined under paragraph 8(1)(q) of the Act.

We trust that these comments will be of assistance.

Yours Truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch