It’s that special time of year again, tax time!
In our recent Insights session Emma Brophy shared her top tips for musicians filling out their tax returns
Please note - the below advice is general in nature. For any specific questions, get in touch with your tax agent or accountant
We know tax returns can get complicated if you’re running your own music business.
That’s why for our recent Insights session we checked in with Emma Brophy, Client Manager at The Gild Group (formerly Generate), to share her tax time tips and how to make it a straightforward process.
Grab the MusicNSW Tax Pack for Musicians, also courtesy of Generate.
You need to declare all of your business-related income. This includes income from gigs, royalty payments and income from selling musical equipment.
If you don’t already have an Australian Business Number (ABN), get one! It’s free and easy. If you don’t have an ABN, the person paying you may have to withhold 47% of your fee. No thanks!
Expenses from running your music business can be really varied. Below we break down the details.
In general though, you can include expenses that are necessarily incurred for you to earn an income. That is, there needs to be a connection between the expense and the income earned.
Keep your receipts: whether hard or soft copy.
Communications – phone, internet, postage
If you use your phone, computer and internet for both personal and business purposes, you can claim a ‘business use percentage’. What percentage of your computer or phone use is connected to your music business? You can claim that percentage of the total cost.
Alternatively, you can include deductions with a ‘home office allowance’.
For things like phone and internet, you can claim 67cents/hour that you work from home.
General – insurance, rent, bank fees, stationery
Public liability and equipment insurance is also deductible, as are bank fees (from your business accounts) and accountant fees. A portion of home and contents insurance may also be claimed – i.e. your equipment in your home studio.
Please note – travel insurance cannot be included.
Run your music business from home? There’s a chance you can claim a percentage of rent.
If you have space at home that is a studio or desk, you can claim part of that rent as a business expense. This is only if your employer doesn’t provide another place for you to work and if the studio is not also used as a bedroom or other private space.
Equipment – instruments, amps, computers
If you’re operating as a sole trader with an ABN, your musical equipment is tax deductible up to $20,000. If you’re not a sole trader, any equipment over $300 needs to be depreciated depending on how long you’ll use the equipment for.
Advertising spend
Putting $$ on your music marketing campaign? You can claim those expenses, including from advertising, media spend and consultants.
Advisors
If you’re working with professionals on your project, you can also claim those expenses. Whether that’s managers, booking agents, accountants, bookkeepers, lawyers or mentors – you can deduct because they are necessary costs to your business.
Education
If you’re taking lessons, you’ll have to show that the lessons are directly related to the core part of your business. E.g. – if you’re taking lessons to improve on the guitar (when your sole trader status is as a guitarist). As above, you have to prove that the cost is directly related to your income.
Travel
CAR
If you use a car for your business, keep a logbook of how many kilometres you’re doing. You can apply a cents / kilometre method.
If you use your car a lot for your business, you can keep a logbook for 12 weeks and note business travel and personal travel. Once you get a percentage of business use over those 12 weeks, you can apply that for up to 5 years (keep it on hand for 5 years). It’s worthwhile if your business use percentage on your car is quite high.
FLIGHTS
Flights for your music business are claimable to an extent.
If you’re going to Europe for a month, but only playing 2 weeks of shows, then you can claim 50% of the flights. Only the accommodation in the place where you performed would be deductible.
While you’re away, keep note of which days were travel days, and which days are show days. Be sure to keep of log of your music-related costs, and dates.
Clothing and makeup
You claim clothing and makeup as business expenses to the extent that you use it for your business. If you purchase clothing that is only going to be worn onstage (ie your sparkly jumpsuit), you can claim it. The ATO require that clothing be “costume”, so a black shirt you wear only on stage still may not be deductible.
Same detail with haircuts. If you’re getting a haircut for a shoot, and it’s a wacky style that you wouldn’t wear in your everyday life, then you can claim it. If it’s just to sharpen up a bit, then the ATO see this as private and it’s not deductible.
Reference and research materials are also deductible, as is procurement of merch.
Insurance products that are deductible: public liability, business insurance.
However home and contents insurance is generally considered a private expense. Note too – travel insurance is not deductible.
Not deductible
Can a business be too small to deduct?
Even if it’s a (very) small business, you can claim your expenses. If your business makes a loss, there are some tests to pass to claim the loss. It either gets carried forward or an offset on income.
Business related income
Yes, you need to declare all business-related income.
Basically, anything you send someone an invoice for related to your business you need to declare – gigs, content you created for a client, teaching or instructing, consulting and so on.
Your royalties from APRA AMCOS, labels, publishers, or overseas entities need to be declared.
Get thee to the Portal and use the Payment Summary feature in the Royalties section. Big news, you can now get APRA and AMCOS summaries and documents. Remittance Advice, Tax Invoices, and Royalty Statements (in XLS or PDF format) can also be downloaded from here. Read our updated guide on Payment Summaries.
If you work as a sole trader, there’s generally no tax being withheld by those paying you. That means your pay your tax when you lodge a tax return and that can be a bit alarming. If you have a bill, expect the ATO to start asking for an estimate of the next year each quarter in advance. Overpaid? No worries, you’ll get it refunded. Be careful if you are varying your estimates.
Emma talks about Tax Instalments in the session
But you already knew that. The ATO thinks so too and are categorized as ‘special professionals’ under tax law, meaning they are eligible for income averaging. This seeks to ‘smooth out’ a breakout year by averaging the income you pay tax on with the smaller years prior.
Reach out to an accountant for help on this.
If you’re an Australian tax resident and you have withholding tax from other countries, you can get that credited back. You do need to declare your worldwide income to the ATO. But, if you had tax withheld in, say, Germany for a concert you performed, it is likely eligible to be a credited to your Australian income tax. An accountant is best to help you with this. Emma covers International and withholding tax.
Read more about APRA AMCOS royalties and overseas tax.
Contractors, you should have super paid on your behalf for your work.
You can claim a deduction on your personal contributions – but there are caps and a form involved.
Listen to Emma’s section on Superannuation.
Watch it back: Emma’s entire Insights Sessions on Tax Time Tips is available to watch on YouTube below and she talks about how to get organized and keep track of transactions and options for accounting software.
Watch the full Insights webinar on YouTube here