Tax for art commission? (AUSTRALIA)

[HaruAkira]

Hi everyone,

I'm currently working as an artist for a game project and my monthly % share will be arriving soon. I currently live in Australia and the payment is mainly going to occur through Paypal or BMTmicro. I was wondering if, in the long term, I will need to get taxed on this monthly payment I get. Is it compulsory at all, since technically, I'm not selling any products online?

Please help! Thanks ^^

 

 

[whitesphere]

I know nothing about Australian tax law, but my guess is the art commission would be counted as extra income, however Australian tax law defines it.

At least in the US, it doesn't matter how you received income, it still must be reported.  The only difference is there are very different tax rates on where the income comes from --- some types of gifts (usually between immediate family members) are exempt, stock gains are less than straight income, wait staff's tips are taxed, etc.

In practice, if the income (in the US) is a small amount, say, $500 or so, it's not likely to change taxes much.  Legally it still needs to be reported, but it's more likely to be a significant issue if someone earns a lot of income is from there.

 

[Celianna]

You must report your income, no matter what country, and no matter what service/product you sold. Check the tax laws for your country.


You are probably an independent, a freelancer. You can either start your own company (which is the same as being a freelancer), or continue as you are and simply report your income at the end of the year.

 

[Nathanial]

Celianna has basically nailed it on the head. Talk to an accountant or a tax specialist... They can help you make the best choice on how to file, whether or not you should start a business entity, and give you tips on deductions. 

Here in the USA, for example, it's better to file as an LLC company than an individual.. Certain tax breaks etc. But income is income, and should be reported. You should also keep track of your costs and losses as well because that will help you pay less tax/get credits...

TL;DR: Report everything, keep track of everything including costs and losses.

 

[Shian]

Interesting question! I found a long legal page with examples etc. 

The gist seems to be that you can either make art as a hobby or as a business. The actual guidelines are somewhat open to interpretation.

However at the point that you say you get a monthly payment, that you're PART of a gaming project, and that you get a % share rather than $X commission, I'd say calling it a hobby would be hard to justify.

Technically you're supposed to report all income, like celianna said. Of course there are ways around this (like gifts etc.) and other considerations like the costs you incur, whether you make a profit, superannuation etc. Just so you know though the ATO has access to your paypal details if they ask for it.

Don't take it from me, though. Talk to an accountant or do the reading yourself to make your own decision.

 

[Wavelength]

In practice it's unlikely you'll be caught if you don't report it, but yes, you are supposed to report any income you earn for the year on your taxes.

 

[HaruAkira]

Thanks everyone! 

I'm just a bit worried because the Australian gov taxes really hard... (-_-)

I have to mention that I'm currently a student and never worked before, so, I don't get asked to report my income at all, nor do I have to pay any taxes. Because of this, do you think I could possibly get away without reporting if my income was just around $500-1000 per month? 

 

[Lunarea]

The best thing you can do is get a tax person to help you file your return. Often times, they will both report your income and find deductions you qualify for, so that you get less taxes to pay - or in some cases, even get tax money back.

 

[Wavelength]

...do you think I could possibly get away without reporting if my income was just around $500-1000 per month? 

Obviously anything anyone answers to this is going to be pure speculation.  I would speculate that yeah, you'd probably get away with it... but you can't take that as solid legal advice or anything.

With that being said, I know that in the US, if your annual income is below a certain level (maybe 10-15K?), you are taxed at 0%.  The Wikipedia article for Australia's tax system seems to imply that income up to about $18K is taxed at 0% in your country (again, don't take anything I take as solid legal or financial advice; you really should talk to someone who knows more), which would mean that all you'd have to pay on the amount you've made is negligible taxes like the 1.5% Medicare tax.

So yeah, unlikely to get caught, but better to go the honest route and report the income, especially since your effective tax on this small amount of income will be really tiny.

 

[Shian]

Honestly considering the circumstances you will probably get away with it this fiscal year (i.e. the 1st July next year, when you have to send in your tax return for he last 12 months and a new one starts... P.S> NOT LEGAL ADVICE). However, depending on how far this work goes, how far other work goes etc., the ATO may find out about it in the years to come. Probably it'll just result in paying the tax back and then some, but it's a risk.

As Wavelength said under the tax-free threshold is $18,200 (provided you are a resident for tax purposes for the full fiscal year).

Whether you're gonna report it or not, at 500-1000 a year it's not worth the money to talk to an accountant/tax adviser most likely. Might be different if there are expenses involved with your work (tablet, art supplies etc.), that you might be able to get back. not sure if that applies if you're under the tax threshold, though.

 

[HaruAkira]

Obviously anything anyone answers to this is going to be pure speculation.  I would speculate that yeah, you'd probably get away with it... but you can't take that as solid legal advice or anything.

With that being said, I know that in the US, if your annual income is below a certain level (maybe 10-15K?), you are taxed at 0%.  The Wikipedia article for Australia's tax system seems to imply that income up to about $18K is taxed at 0% in your country (again, don't take anything I take as solid legal or financial advice; you really should talk to someone who knows more), which would mean that all you'd have to pay on the amount you've made is negligible taxes like the 1.5% Medicare tax.

So yeah, unlikely to get caught, but better to go the honest route and report the income, especially since your effective tax on this small amount of income will be really tiny.

Honestly considering the circumstances you will probably get away with it this fiscal year (i.e. the 1st July next year, when you have to send in your tax return for he last 12 months and a new one starts... P.S> NOT LEGAL ADVICE). However, depending on how far this work goes, how far other work goes etc., the ATO may find out about it in the years to come. Probably it'll just result in paying the tax back and then some, but it's a risk.

As Wavelength said under the tax-free threshold is $18,200 (provided you are a resident for tax purposes for the full fiscal year).

Whether you're gonna report it or not, at 500-1000 a year it's not worth the money to talk to an accountant/tax adviser most likely. Might be different if there are expenses involved with your work (tablet, art supplies etc.), that you might be able to get back. not sure if that applies if you're under the tax threshold, though.

Thanks for your suggestion. Now that you mention it, I remember hearing about 0% tax if my annual income is below $18000. I'm pretty sure that this is the case, since I doubt my annual income will be above that threshold. 

Thanks!

 

[Shaz]

I'm also in Australia, so I can help you with our taxation laws.


My advice is to see your accountant.


There is the tax free threshold of $18,000 where you pay 0 tax, but you still have to declare your income and let THEM decide you pay 0 tax.


If you are doing this as a hobby, you are allowed to earn a certain amount from it (I don't know the figure - it probably changes from one year to the next) before you have to declare it as income. This is separate to what you earn from your normal job. You should also ask about the logistics of using Paypal ... you "earn" the money the day it hits your account. But what if you receive $US and don't convert it to $AU straight away? Do you declare the amount as what you WOULD get if you DID convert it straight away, or only when you DO convert it?


If you're not doing it as a hobby - if you work as an artist and you freelance, then it becomes a part of your regular income and you need to declare it.


Here are some pages of interest:


https://www.ato.gov.au/Media-centre/Articles/Is-it-a-business-or-a-hobby-/


https://www.ato.gov.au/Business/Starting-and-running-your-small-business/In-detail/Getting-started/Online-selling---hobby-or-business-/


(based on this definition, I think you would be safe to say it is still a hobby at this stage)


http://www.theage.com.au/small-business/finance/when-does-a-hobby-become-a-business-20131007-2v48s.html

 

[Celianna]

I have to mention that I'm currently a student and never worked before, so, I don't get asked to report my income at all, nor do I have to pay any taxes. Because of this, do you think I could possibly get away without reporting if my income was just around $500-1000 per month?

No ... that's a huge amount of money. That is money you could live off of.


There are certain limits of money you can 'earn' without paying taxes for - they're usually not more than $3000 a year, but of course this differs per country. If you're getting $1000 a month, you're getting $12,000 over the whole year, that is an independent company.

https://www.ato.gov....y-or-business-/


(based on this definition, I think you would be safe to say it is still a hobby at this stage)

I wouldn't, definitely not.


OP is basically hired as an artist to create art for a game (that will most likely be sold - that's definitely business), they're getting a monthly income from this. In no way is this a hobby anymore, especially since they're getting MONTHLY payments, and the people they work for are most definitely creating a game to make a profit, and OP is part of that.


It's one thing to be an artist who does commissions and earns a whopping $20 every once in a while. It's another to work on a commercial game and get a monthly income. You must report your income, this is no longer a hobby. If anyone checks your bank accounts, they will wonder "Hey, where does this person get their money from, and why are they hiding it from us?"

 

[Engr. Adiktuzmiko]

Yeah, if ur getting regular monthly payments, I can hardly call that as a hobby. It's already freelance work.

 

[Shaz]

Did you set up your online sales with the intention of being a business?


Do you pay for your online-selling presence?


Is your main intention to make a profit?


Do you make repeated or regular sales?


Do you sell your online items for more than cost price?


Do you manage your online selling as if it were a business?


Is what you are selling online similar or the same as what might be sold in a 'bricks and mortar' business?

I don't see any mention of any onlines sales presence being set up.


I don't see any mention of payment for setting up an online-selling presence.


As I said, check with your accountant. The requirements DO differ from one country to another, and I've already had this very same conversation with my accountant (in Australia) - when I was getting a small (more than you're getting), regular income by doing game development. I WAS able to class it as a hobby for a while.

 

[nio kasgami]

I don't know for australia but in Quebec we only pay tax on our products we buy.

What we pay is call "Impot"

Naturally we a suppose to declare all money we gain but for artist if I remember this not count.

the fact you work like a free lance artist not count in our taxation so the fact you live from your art don't add extra impot you will only pay the regular tax.

 

[Traverse]

Please make note: I am not a trained or licensed lawyer and this is not legal advice. Do not take this as legal advice - please see an actual lawyer or licensed professional instead of asking about legal issues online.

A couple of things needs to be said here. Firstly, in most countries including Australia, the rate at which you are taxed and even what exactly you are taxed on depends on whether you are a resident of that country for tax purposes or otherwise. This is not the same thing as being a citizen of the country - even if you are not a citizen, you can still be a tax resident if you stay in the country long enough (among other factors). Just because you currently live in Australia does not necessarily make you a tax resident there either. Figuring out whether or not you are is one of the reasons you will want to see a professional.

Foreign tax residents do not get a 0% tax rate in Australia at any threshold.

The next thing that should be said is that all the stuff about distinguishing between business or hobby is actually not so much relevant to deciding whether or not the money you're getting paid is assessable income - it's really more to do with claiming deductions. Tax law in most countries (including Australia) allows tax deductions to be claimed on certain expenses, including operating expenses for businesses. Needless to say, operating expenses for hobbies are usually not deductible.

Obviously, not only businesses get taxed. Employees are not making their money by running a business, they're making money from being employed. Most countries tend to tax employee income too, not just business revenue. I doubt that applies to this situation - most likely it will come down to deciding whether you are a professional artist in the business of contracting with clients (http://law.ato.gov.au/atolaw/view.htm?docid=%27TXR/TR20051/NAT/ATO/00001) or whether you're just doing it as a hobby, with the money being incidental. But depending on the nature of your agreement with the person paying you, you might also be considered employed.

Those are a matters for a tax professional/lawyer to decide. Which brings me to my last point - when you go to your tax agent to discuss your issues, you may want to make sure they are a registered tax agent (not any random accountant), since Australian tax law seems to allow deductions to be claimed for any expenses you incur seeking tax advice from registered advisers.