Working Smarter Guide: Outgoing Costs

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:

PAYG

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).

Income Averaging

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

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.

GST

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.

BAS

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.

Employing Others

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:

• Rounded
• Wave Financial
• Quickbooks
• 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
• Airtable

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.’