It’s tax time again (again?!) and the ATO has recently reminded us of what we can and can’t claim as creative professionals. Creative businesses and professionals are in an interesting position with regards to deductions, as many of us are individuals, small businesses AND professional artists. It’s super important to double-check all of your supposed deductions with your accountant or directly with the ATO, as there is an awful lot of surprisingly grey area around some claims.
You can claim a deduction for most expenses you incur in running your business as long as they are directly related to earning your assessable income.
Remember the three golden rules for claiming your business expenses:
- The money must have been spent for your business (not exclusively a private expense).
- If it is for a mix of business and private use, only claim the portion that is related to your business.
- You must have records to prove it.
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.
You claim business deductions in the tax return for your business entity or, if you’re a sole trader, in your personal tax return.
You can claim a deduction for most expenses you incur to run your business, as long as they directly relate to how you earn assessable income.
If you or your employees travel for work, you can claim deductions on transport such as airfares, train, bus or taxi fares.
For overnight travel, the rule for claiming expenses is:
- one night or more – keep written evidence of all expenses;
- six or more consecutive nights – keep a travel diary recording all the particulars of the business activities you undertake.
Check out the Australian Taxation Office (ATO) Business travel expenses information.
Motor vehicle expenses
Do you have a car you only use for business?
Claiming expenses and how you calculate them will depend on:
- your business structure (i.e. sole trader, company, partnership or trust);
- the type of vehicle;
- how the vehicle is used.
Go to the ATO’s Motor vehicle expenses page to learn more.
Repairs and maintenance
You can claim a deduction for repairs and maintenance on your business assets, including:
- painting, plumbing and other repairs;
- repairing electrical appliances and technological gear;
- repairing machinery.
For more information visit the ATO’s Repairs, maintenance and replacement expenses page.
Running your business from home
If you run a home-based business, or have a home office where you work from home, you may be able to claim:
- occupancy expenses – such as mortgage interest or rent, council rates, land taxes, house insurance premiums
- running expenses – such as gas and electricity, phone, decline in value of plant and equipment, decline in value and cost of repairs to furniture and furnishings, cleaning.
Use the ATO’s Home office expenses calculator page to help you work out the amount you can claim as a tax deduction for home office expenses.
General operating expenses
Operating expenses are the costs you incur in the everyday running of your business, such as:
- advertising, marketing, promotion and sponsorship expenses
- payments to freelancers and other workers;
- legal expenses;
- internet usage;
- bank fees and charges;
- costs for running a commercial website – and so much more!
You can generally claim a deduction for most operating expenses. Check out the ATO’s Other operating expenses page for a full list you can claim information.
Check out these other resources for more lists of deductions for creatives:
- ETAX ACCOUNTANTS – Tax Deductions for Freelancers
- MICHAEL FOX – Top 10 tax claims for artists and creative professionals
- MUSIC INDUSTRY INSIDE OUT – A Comprehensive How-To Guide For Musicians And Music Workers
- ELECTRA FROST – Tax Deductions
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. The ATO website provides further questions, information and examples to help you understand the differences between a hobby and a business.
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.
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:
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 art works!”