Common questions asked around tax time

At the time of writing this article Kylie Parker was an accountant at Broadway Accountants and was on the Arts Law Accountants Referral panel

I work largely from home where I have an office and studio, what can I claim as a home office deduction?

If you carry on all or part of your employment or business activities from home, then a percentage of the home expenses can be deducted. That is, you have an area set aside for income producing purposes such as a studio or home office. This is to be distinguished from situations where you have another place of business but just work at home from time to time as well, whether in an area designated for that purpose or not.

Where a home is a place of business, deductions can be claimed on the following items of expenditure – interest, rent, house insurance, council rates, gas, electricity, depreciation, insurance, repairs, cleaning, pest control, maintenance, decorating, internet and telephone. All costs and the basis used to establish the percentage claim, need to be substantiated.

Note that if you own your home and claim ownership costs (i.e. interest, insurance etc), firstly they will need to be halved if you own the property jointly with a partner, and secondly, using your home as a place of business will give rise to a potential Capital Gains Tax liability, if the property, or any extensions, were acquired after 19 September 1985.

It is also important to be aware that the CGT liability doesn’t arise just because you have made ownership claims; if you use your home as a place of business it then loses the full Principal Place of Residence exemption regardless.

I need to drive from my part time employment to auditions and acting roles on a regular basis, can I claim my car expenses?

Yes, you can claim an income tax deduction for transport expenses where the following conditions are met:

  • you incur transport expenses in traveling directly between the two places of work or audition;
  • the purpose of the travel between workplaces is to also earn assessable income at the second place;
  • at the time of the travel the income earning activities at the first workplace had not permanently ceased; and
  • the individual does not reside at either place.

My friend deducts clothing expenses up to $300 each year as they said you don’t need receipts and I wanted to know if this is allowed because she is an actress?

No, they cannot just claim $300. You must incur an expense before it is claimed. Whilst you may not need receipts below $300 you must have still spent the money and it must be relevant to your employment.

Clothing is a grey area so it is particularly important to keep your receipts as normal everyday attire is not allowed as a tax deduction. For an entertainer or an artist to be able to claim clothing expenditure it needs to be directly related to an income producing activity. For example, an entertainer dressing as Barbie at birthday parties can claim Barbie style clothes that she needs to purchase.

What records do I need to keep and how long until I can throw them away?

It is important to keep the receipts that relate to the expenses shown in your tax return for a period of at least five years after you receive the Australian Taxation Office (ATO) assessment.

The ATO now accepts credit card receipts provided it gives full details of the supplier and date of purchase. You can notate on the receipt the type of goods or services supplied.

I am self employed so don’t have any superannuation paid on my behalf through out the year what amounts can I claim?

The definition of being self employed for tax purposes means that you do not earn more than 10% of your gross income (before deductions) from sources where Pay as you go (PAYG) tax has been withheld.  

Where this requirement is met then you are entitled to a tax deduction for contributions to a superannuation fund. The first $5000 is fully deductible together with 75% of amounts paid over $5000 currently up to the aged based limits. The contributions need to be in the superannuation fund's hands no later than 30 June to claim the deduction so don't wait until June 30 before sending off your cheque.

I have heard about income averaging can you explain why it is relevant to me?

The process of income averaging is an acknowledgment of the variability of income that people working in arts and entertainment experience from year to year. While you will pay tax on all of the income in a particular year, the rate at which that tax is applied will be based on the figures that would apply if you had earned that income over a five year period – hence the term income averaging.  It effectively smooths out your tax rate over the five years so that if you have a great year and earn $75,000 but the next year you only earn $25,000, then you will pay the tax rate applicable on $50,000 over the both years.

So it will be relevant to you if your business is of an artistic nature, you earn more than a net amount of $2,500 in a financial year from your artistic pursuits and this income was not received as an employee.

I am worried I am getting close to earning $50,000 this year and want to know what will happen if I lodge a tax return showing income over $50,000 when I haven’t charged GST.

This is definitely an area to be wary of as legally when you earn over $50,000 you should be registered for GST and charging and remitting to the ATO an additional amount of 10%.  If you declare business income over $50,000 whilst not registered for GST in your income tax return then the ATO have the right to ask you for 1/11th of the additional income.

Not only will you be out of pocket for the amount of GST, but you may have to pay penalties and interest.

The ATO website states that if you aren’t registered for GST, each month you need to look at your annual turnover to make sure it’s not $50,000 or more ($100,000 for non-profit organisations). Your annual turnover is $50,000 or more if:

  • your turnover for the current month and the previous 11 months is $50,000 or more; or
  • your turnover for the current month and the next 11 months is likely to be $50,000 or more.

If your turnover is $50,000 or more, you must register for GST within 21 days. However, if your turnover for the current and previous 11 months is $50,000 or more and they are satisfied that your turnover for the current and next 11 months will be below $50,000, you don’t have to register for GST.

I have been approached by a local public gallery to provide a sculpture for their new building as a gift; can I get a deduction for this?

In order to claim a deduction you will need to have not offered this work for prior sale and obtain a market value – the ATO has lists of approved valuers – which cannot be more than 3 months old when you make the gift to the public gallery.

My Tax Agent is very expensive as they charge on a time cost basis, how can I reduce my fee this year?

Whilst the fee charged by a Registered Tax Agent is deductible in the year it is actually paid and you can claim the cost of traveling to their office, it makes sense to try and reduce this expenditure. By providing your information in a format that results in your accountant spending less time sorting through your receipts and more time providing you with business or financial advice you will both benefit.

There are many off the shelf computer programs that can help keep your records in an efficient format and simple excel spreadsheets that when completed will save you money. If you don’t have access to a computer just bundling all your receipts into one category and adding them up will help.

Many advisers will also provide an upfront fee quote and an engagement letter with this agreed fee. This should result in no fee surprises on the completion of your work.

How do I know if my tax agent is registered with the Taxation Office?

The Tax Practitioners Board keeps the data base of registered tax agents.

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