Sure, it’s boring, but tax is super important for creative practitioners and arts organisations. Learning about how it works, and specifically for you, is a weird combination of boring and scary. However, it can also be empowering to understand what you can.
Creative businesses and arts professionals are in an interesting position with regard to our overall tax situation, as many of us are individuals, small businesses, AND professional artists (which means we have a lot of different tax rulings about us). It’s super important to double-check all your supposed deductions with your accountant or directly with the ATO, as there is an awful lot of surprisingly grey area around some claims.
Here are some key things to think about when getting ready for your tax return this year! And remember, you can always watch our annual webinar all about tax.
What is Assessable Income? from www.ato.gov.au
This usually means any kind of money associated with your professional work, including wages, money paid through an invoice, and certain kinds of benefits. Even money that you get from a grant could be classified as assessable income, if it’s for your professional work. Even more reason to learn about how the whole system works, maximising your deductions, and reducing that naughty tax bill!
What is a Tax Deduction? from www.ato.gov.au
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 check out the ATO’s webinars and workshops about the principles of income tax deductions that apply to all businesses. Remember the three golden rules for claiming your business expenses:
1. The money must have been spent on your business (not exclusively a private expense).
2. 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).
3. 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. You can find out more here:
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. This can be complicated, so make sure you talk to your accountant and work it out!
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 deductions
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!”
Curious about the GST? from Xero
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 online. Courtesy of Xero.
- How GST works and when to register—a ‘fun’ video and helpful resources from ATO TV!
- ATO Webinars and Workshops—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.
Go forth and conquer, you mighty tax champions. You got this!