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Income Averaging

Who Can Use it?

Income Averaging can be utilised by Special Professionals who earn over $2,500 from their first financial-year. The following people are examples of Special Professionals:

  • an author of a literary, dramatic, musical or artistic work,

  • an inventor,

  • a performing artist,

  • a production associate,

  • a sportsperson

The ATO have definitions for each Special Professional and you should make sure you qualify for this concession with your Tax Accountant. Some careers are excluded, such as; umpires, referees and animal trainers.

Income that can be counted towards your Special Professionals Income could be:

  • rewards and prizes,

  • income from endorsements, advertisements, interviews, commentating and any similar service,

  • royalties from copyright of a literary, dramatic, musical or artistic work, and

  • income from a patent for an invention.

What is it?

As a Special Professional your income is much more likely to experience natural highs and lows. Income Averaging is a tax concession that suits these lines-of-work because it’s exactly how it sounds; You get taxed on your “average income” over a set-period of time, making it fairer.

How it Works

Your Income Average is worked out on one quarter of your total earnings, of each year, over the 4 preceding years. If you’ve worked less than 4 years, there’s a sliding scale to work out your average:

  • year 1 = nil,

  • year 2 = one-third of income in year 1,

  • year 3 = one-quarter in years 1 and 2,

  • year 4 = one-quarter in years 1, 2 and 3.

It starts to get a little more complicated if there is an exception to the summary above. In other words, if you receive an Above-Average Special Professional Income. If you think this may apply to you contact us, so we can help you to calculate how this could possibly affect your tax. ATO link to see an example of the calculation.

Are you Above-Average?

As tax experts we would love to hear from all those Special Professionals out there in the creative and sporting fields. Do you have any particular questions regarding your taxable income? Maybe we can help tailor a tax solution to your unique situation. For those of you that work in the film industry, there are new tax incentives and offsets which may positively affect you this year. Get in touch with us today to find out more.

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