Running your own design business (as a sole trader, partnership or company) will involve outgoing costs, otherwise known as business expenses. You will need to plan for your outgoing costs so you can manage your cash flow and keep track of your expenses so you can claim them in your tax return each financial year. The costs can mount up, so it is useful to work them out and keep track of all your regular business expenses as part of your business planning.
Most business costs are recurring and come around at the same time every year. Try to spread these costs across the year so they don’t all come at the same time. Many costs can also be scheduled as smaller, part-payments: power, tax, rates and some insurances can be paid this way to manage a tight cash flow.
Traditionally, live performance designers have been covered by the insurance of the company employing us, like any other employee. The APDG believes that designers should be covered by employer insurances and has included insurance clauses in the APDG Standard Agreement (Section E – Producer’s Assurances).
However, increasingly companies are classifying designers as contractors rather than employees, and requiring them to provide their own insurance cover. If you really are working as a contractor you do need to provide your own insurance.
Before agreeing to provide your own insurance cover, check with the company engaging you if they can include you and your work under their insurance policy. If they cannot or will not cover you then APDG recommends that the cost of the required insurance should be added to your fee. You might want to invoice for insurance separately so it is clear that it is a separate business cost.
Regardless of whether the company employing you is insuring you, many designers decide to take out their own insurance. Which insurances, and how much insurance cover you take out, very much depends on the level of risk you feel comfortable with and how much insurance you can afford. Taking out a ‘bundle’ of insurances with one provider will usually be cheaper than taking out separate insurances (see below for APDG Member recommendations). A broker with knowledge of the arts sector can also help designers with finding suitable policies.
Insurance rules change from company to company and state to state, so it is important to negotiate insurance openly with your employer as part of your contract.
Employers have to have this to cover their employees against injury sustained during the course of their employment.
The employer’s or venue’s Workers Compensation insurance will cover you when you are at work on their premises and in the theatre. It may not cover you when you are travelling between jobs, or working in your studio. Check with your employer and also refer to the APDG Live Performance Contract (Section E – Producer’s Assurances).
Death and Total and Permanent Disablement Insurance (TPD)
An insurance policy that people can choose to have to provide security for you and your family if you become totally and permanently disabled, or die.
This insurance is not compulsory but is advisable. Your superannuation provider may be able to provide this insurance as part of their client service. If you elect for the cost of your TPD cover to be deducted from your super account, be careful that this does not affect your super performance too much.
An insurance policy that provides the designer with insurance cover for claims relating to professional advice they have given that causes loss and/or injury.
Although the professional indemnity risks for a designer may be considered low, an increasingly ‘risk-averse’ workplace environment has made this insurance a standard part of the insurances requested by producers. Ask your employer to clarify what risks they actually want you to indemnify against.
An insurance policy that provides the designer with insurance cover for claims by members of the public relating to loss and/or injury.
This insurance would cover you for an accident to another person – in your studio, for example.
An insurance policy which covers self-employed people for lost income if they cannot work due to accident or illness.
To qualify for this cover you need to demonstrate a regular income over two years. Superannuation companies can also provide this insurance.
Most respondents of the 2018 APDG survey did not have income protection.
Tips and Tricks
- ‘It can feel hard early in your career to justify the expense of paying the insurance premium. If you do not have income protection, it is a good idea to plan for how you will ride out a period of not working due to illness or injury’
- ‘I make sure my business insurance premiums don’t coincide with my vehicle insurance premiums’
- ‘I decided I couldn’t afford income protection insurance, so I just put some money aside in a separate high interest account that I could use if I really needed to’
- ‘It is worth asking the company to include you in their workers’ compensation insurance plan if it is not obviously stated in your contract – many companies can do this fairly easily and are happy to oblige’
Some Insurance providers that have been recommended by APDG designers:
- Guildhouse Insurance for Artists
‘Their bundle of insurances is very affordable. Set and costume designers can now join as Accredited Members. They also have a Student membership. Guildhouse also has great resources for artists (grant writing, tax, online marketing…)’
- Adroit Insurance
Our taxes pay for important things, including supporting our arts industry, so we see paying tax as a community act rather than a burden. Keep it simple – put aside a proportion (about a third) of your income with each pay, and keep track of all outgoing costs that may be potential deductions so you can claim them when submitting your tax return at the end of each financial year.
Your Assessable Professional Income (API) is calculated on all of your business earnings including fees, salaries, royalties and scholarships or grants. Your Taxable Professional Income (TPI) is your profit – all of your income, minus deductions. You pay tax on your TPI.
The marginal tax rates are revised from time to time, but essentially if you are earning below $18,200 per annum you pay no tax. Above this amount the tax rate increases in tax ‘brackets’ – above $45,000 p/a, above $120,000 p/a, with the highest tax rate kicking in at an income above $180,000 p/a (2022 figures). It is worth keeping an eye on your earnings within a financial year and, if you can, manage the timing of your payments to stay within a lower tax bracket.
Use your individual Tax File Number to lodge your tax return. You can use this ATO calculator to estimate your tax obligations:
As sole traders most designers are paid by fee instalments, in which case the employer does not deduct tax, and you need to pay your own tax. The ATO has a ready-made system called PAYG (pay-as-you-go) where tax is paid in quarterly instalments. This is an easy way to manage your tax obligations throughout the year.
You may also be employed full-time, part-time or casually, in which case the employer will deduct tax from your salary or pay and make tax payments on your behalf. This arrangement is preferred by some smaller production companies and is also preferred by some designers as it simplifies the employment relationship – the employer procedurally makes tax payments and superannuation contributions and provides insurance cover, making all of this very straightforward. The employer digitally notifies the ATO of all payments, and these become part of your Assessable Professional Income (API).
Live performance designers are considered ‘special professionals’ for the purposes of tax, and are therefore able to use income averaging as a way of managing our highly variable incomes from one year to the next. It means that if you have a high-income year, this can be offset by lower income years over a four-year period. Once you earn more than $2500 p/a you are able to start averaging your income. You don’t need to work out your tax averaging – the ATO or your accountant will do it for you – just fill out section Z, item 24 on your tax return.
Tax Planning may be an effective way to minimise your taxable income. Your accountant can explain the difference between tax evasion (which is illegal) and tax minimisation (which is legitimate). Paying extra funds into Super or timing the payment of particular expenses or fee instalments to divide or defer tax across financial years are legitimate strategies.
Your Gross Turnover for GST purposes is your Assessable Professional Income (API) minus GST. If you are a Business earning more than $75,000 p/a Gross Turnover (2020 figure) you also need to register for GST and pay goods and services tax.
If you are a business registered for GST you need to lodge a business activity statement Business Activity Statement (BAS). This can be done monthly or quarterly and is a tax statement that reports GST collected and paid.
If you are employing others in your business, and paying them more than $450 in any month (and unless they are a contractor), then you are considered to be an employer and they are your employee. You will need to deduct their tax and pay Superannuation contributions into their Super Fund, ie pay their Super Guarantee.
Tips and Tricks
- ‘Set up a separate bank account for your tax and put away a quarter to a third of each fee payment.’
- ‘If you plan ahead you can set fee payment schedules to have more of your fee paid within a lower-income year, and avoid moving up to the next tax bracket.’
- ‘As a sole trader you are not legally required to make payments into your own Super Fund which can really set you back. Commit to effectively investing in your future by making appropriate contributions: 10% of your income or less is better than none, perhaps start with 5% and build up.’
Many of your work expenses are claimable as tax deductions if you keep an exact record of the expenses. Legitimate business tax deductions include: agent’s commission, insurance premiums, accountant fees, APDG membership and award entry fees, membership fees of other professional groups, travel, petrol, rates and power, internet, printing, books, tickets to exhibitions and productions, software subscriptions, computer and equipment depreciation, vehicle depreciation, gifts to charities, stationary, mobile phone bills, studio rent, professional journal subscriptions, training and upskilling courses. If your income is classified as Personal Services Income* (see below) some of these expenses may not be claimable. See your accountant to discuss further.
Some other expenses are claimable against the production or production company. Your contract should specify these: design materials including model materials, printing, show-specific references or samples, travel including petrol, tolls or parking.
* Personal Services Income (PSI)
If you are working as a company, trust or partnership, PSI rules may apply. Personal Services Income is income produced mainly from your personal skills or efforts as an individual. Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise.
Under this ruling, you are unable to claim certain expenses as a trading entity would. If you believe you fall into this category, speak with your accountant regarding what you can and cannot claim. The rules are very specific. Visit the ATO site for more information.
Keeping tax records
It is your responsibility to keep an accurate and complete record of your income and expenses. Traditionally, designers kept a ‘shoebox’ of receipts which had to be sorted out at tax time, but digital record-keeping apps make this process a lot easier and more reliable. You can use your smartphone to scan receipts straight into a bookkeeping app that will also generate timesheets and invoices for you.
Some finance management apps recommended by APDG designers:
- Wave Financial
- Xero – This is a program accountants use. Ask your accountant if a cheaper version is appropriate for you. Xero partners have access to cheaper (albeit limited usage) subscriptions, some as cheap as $5 per month for a very basic, non GST subscription
Let us know if you use and enjoy using a different app!
Find a good accountant
Get yourself an accountant with knowledge of the arts so you get relevant accounting advice. Ask your peers for recommendations. A lot of the communication with an accountant can happen remotely – over the phone or by email, but even so, try to find someone reasonably nearby. If your accountant is hard to reach, doesn’t return calls, or doesn’t remember your business circumstances from one call to the next, it might be time to look for a new one.
Tips and Tricks
- ‘Make a weekly time for ‘Administration’ and use it to record all petty cash, write and send invoices or other admin duties.’
- ‘Keep all receipts. Store them in an organised folder (analogue or digital). You can use a series of envelopes and/or photographed and stored in an app. E.G. a receipt scanning app like the ATO myDeductions app, Google Drive, Hubdoc (if using Xero)’
- ‘If you need to pay for production costs, find ways to make them claimable, or try to move the cost back to the production.’
- ‘Check valid business tax deductions with your accountant – they may suggest others.’
- ‘Use a logbook or use the ATO app to log your driving kilometers if you want to claim travel. Check vehicle and travel expenses on the ATO website.’
- ‘I claim Netflix and other providers for research, work clothing including jeans and footwear, servicing of equipment, donations, website and marketing expenses, computer programs, art supplies, technology such as a camera or computer, health insurance, parking, networking events, educational magazines, business set up costs.’
- ‘You can claim meals if you are working away from home.’
- ‘Receipts fade, so try photographing, scanning or photocopying them.’
- ‘As soon as a digital receipt comes into my inbox I move it to a ‘Tax Deductible’ folder which makes it fast to access receipts at tax time’
- ‘I use my credit card where possible. I then print out my statements at the end of each tax year (which my bank makes easy) and highlight any potential tax deductions in case I’ve missed them through the year or lost the receipt somehow. My tax agent accepts this as proof of the expenditure.’
The APDG makes its best efforts to make sure all information we post is correct, however Members use this information at their own risk. It is up to each individual to research the validity of resources they use. The APDG accepts no responsibility for information given in external links. Tips and services listed in this resource have been recommended by APDG designers, however their listing in this resource should not be construed as an endorsement by the APDG.