Sure, it’s snooze-worthy, but tax is super important for creative practitioners and arts organisations. Learning about how it works is a weird combination of boring and scary. However, it can also be empowering to understand how tax applies to you specifically.
Creative businesses and professionals are in an interesting position with regards to deductions, as many of us are individuals, small businesses, and professional artists. It’s super important to double-check all of your supposed deductions with your accountant or directly with the ATO, as there is an awful lot of surprisingly grey area around some claims.
This usually means any kind of money associated with your professional work, including wages, money paid through an invoice, and certain kinds of benefits (like JobSeeker). Even money that you get from a grant could be classified as assessable income if it’s for your professional work. All the more reason to learn about how the whole system works, maximising your deductions, and reducing that naughty tax bill!
You can claim a deduction for most expenses you incur in running your business if they are directly related to earning your assessable income.
You can watch the ATO’s Income tax deductions webinar about the principles of income tax deductions that apply to all businesses.
Remember the three golden rules for claiming your business expenses:
- The money must have been spent on your business (not exclusively a private expense).
- If it is for a mix of business and private use, only claim the portion that is related to your business (this is called apportioning).
- You must have records to prove it—digital records are fine, but you’ll need paper copies of original receipts as well.
For example, you can claim a deduction for a laptop if you bought it for your business—just claim for the proportion of business use (not private use) and keep your receipt. The percentage that you choose is up to you, but if asked you’ll need to prove why you chose this percentage. Most people base their percentage on use—for example, if you use your laptop 80% of the time for business purposes, you can claim 80% of the cost of the laptop.
What Can I Claim? From www.business.gov.au
You can claim a deduction for most expenses you incur to run your business if they directly relate to how you earn assessable income. This is true for sole traders, partnerships, and companies—but the generosity of deductions will vary.
Running your business from home
If you run a home-based business or work from home, you may be able to claim:
- Occupancy expenses—such as mortgage interest or rent, council rates, land taxes, house insurance premiums (this is only available if you have a separate room or workshop);
- Running expenses—such as gas and electricity, phone, decline in value of plant and equipment, decline in value and cost of repairs to furniture and furnishings, and cleaning.
One of the easiest ways to claim working from home is the Fixed Rate Method, which is a deduction based on all of the running expenses that you might have:
- Work out how many hours you spend on average in your home office over a four week period (using a diary or calendar as a representative guide of the pattern) OR over the whole year (you’ll need records to show your hours)
- Multiply that amount by 52 cents per hour.
For example, Fred works at home for 20 hours per week, for 48 weeks of the year. His Fixed Rate would be 20 x 48 x .52 = $499 deduction.
Use the ATO’s Home office expenses calculator page to help you work out the amount you can claim as a tax deduction for home office expenses. If you own your home, talk to your accountant about any potential Capital Gains Tax issues.
If you travel for work, you can claim deductions on transport such as airfares, train, bus or taxi fares—as long as you are travelling from one place of work to another. Travel from home to work doesn’t count (unless you maintain a home office).
For overnight travel, the rule for claiming expenses is:
- One night or more—keep written evidence of all expenses;
- Six or more consecutive nights—keep a travel diary recording all the particulars of the business activities you undertake.
Check out the Australian Taxation Office (ATO) Business travel expenses information.
Motor vehicle expenses
Do you have a car you only use for business or travelling from one place of work to another? Claiming expenses and how you calculate them will depend on:
- Your business structure (i.e. sole trader, company, partnership or trust);
- The type of vehicle;
- How the vehicle is used.
Go to the ATO’s Motor vehicle expenses page to learn more.
Paying Other People
As a business owner, you can generally claim a tax deduction for any money that you pay to other people in the form of salaries, wages, and invoices.
You can also claim a tax deduction on any super contributions that you make (on time) to a complying super fund for those people. If you’re a sole trader, you can usually claim a deduction for your own super contributions in your personal tax return as well.
Find out more on the ATO’s Salaries, Wages and Super page to learn more.
Repairs and maintenance
You can claim a deduction for repairs and maintenance on your business assets, including:
- Painting, plumbing, and other repairs;
- Repairing electrical appliances and technological gear;
- Repairing machinery.
For more information visit the ATO’s Repairs, maintenance and replacement expenses page.
General operating expenses
Operating expenses are the costs you incur in the everyday running of your business, such as:
- Purchases of trading stock (if you sell product), and delivery charges;
- Advertising, marketing, promotion and sponsorship expenses;
- Small value mobile phones and tablets;
- Legal expenses;
- Internet usage;
- Bank fees and charges;
- Costs for running a commercial website – and so much more!
You can generally claim a deduction for most operating expenses. Check out the ATO’s Other operating expenses page for a full list you can claim information.
Other Resources for Deductions
Check out these other resources for more lists of deductions for creatives:
- ETAX ACCOUNTANTS—Tax Deductions for Freelancers
- MICHAEL FOX—Top 10 tax claims for artists and creative professionals
- MUSIC INDUSTRY INSIDE OUT—A Comprehensive How-To Guide for Musicians And Music Workers
- TAX DEDUCTIONS FOR GRAPHIC DESIGNERS
- COMMON DEDUCTIONS FOR CREATIVE INDUSTRIES
Business or Hobby? from www.business.gov.au
It’s important to understand the differences between a hobby and a business for tax, insurance, and legal purposes.
Key questions to consider:
- Is the activity being undertaken for commercial reasons?
- Is your main intention, purpose, or prospect to make a profit?
- Do you regularly and repeatedly undertake your activity?
- Is your activity planned, organised and carried out in a businesslike manner?
If you answered yes to most of these questions, you’re likely to be running a business, although it depends on your individual circumstances. The ATO website provides further questions, information and examples to help you understand the differences between a hobby and a business – this can be complicated, so do your best! You can also find out more here.
To get an answer specific to your circumstances, you can:
- Talk to a legal, accountant or business adviser in your area who can help you decide whether you’re running a business or a hobby.
- Get a private ruling from the ATO, which will provide an answer that protects you from penalties and interest.
From the Tax Rulings
If you’re curious about the root of all these rules, and you have a spare couple of hours, you can find out all the original material here:
TR 2005/1 – Income tax: carrying on business as a professional artist
TR 95/20 – Income tax: employee performing artists – allowances, reimbursements and expenses
TR 98/14 – Income tax: employee journalists – allowances, reimbursements and deduction
We highly recommend the examples… “Jennifer has been painting for several years. She is employed as a public servant, but works on her art in her spare time…Jennifer does not make any concerted efforts to sell her artworks!”
GST stands for goods and services tax and is added to nearly everything you buy in Australia. If you’re a business, you may be required to register for and collect GST. Here are some handy ways to find out more in the least boring way we could find!
- Your quick guide to GST and BAS in Australia—download an e-book or read it online, courtesy of Xero.
- How GST works and when to register—a ‘fun’ video and helpful resources from ATO TV!
- GST Webinar from the ATO—free to register and join.
Time to get organised!
If you’re looking for an accountant that specialises in the creative industries, check out our Groovy Accountants. This free listing allows you to check them out—we don’t necessarily endorse them, but we do recommend you give them a call and find out more for yourself.
If you think it’s time to try out Cloud Accounting, there are lots of options including the more famous (and expensive) methods such as Xero and MYOB. We recommend Rounded, which is an Australia-owned small business that provides cloud accounting for sole traders and freelancers, with a mission to help creatives, You can try them for free for a month by clicking here! And you can watch a webinar about the platform here.
GOOD LUCK! Pour yourself a vino after getting your tax act together, you deserve it.