Music Business Notes extracted from SCALA NEWS Tax Matters from a workshop with Mark Kraus
Income:
Having crossed the bridge from hobby to professional status for most musicians means finally taking their talent from the lounge room to the stage. As professionals, as soon as musicians earn money from their music they should declare it. This includes money earned at gigs, whether cheque or cash, APRA and other royalties, sales of recordings and any other music related income. Any person deriving an income from music should keep a record of their music related income. Many gigs are paid in cash and it is often tempting for the musician to pocket the cash and not declare it. Yet this is income for work undertaken as a musician and it should be declared as such. It is sometimes surprising to musicians who keep records of their music income, to find how much they have earned from music over the financial year.One of the best ways of keeping such records of income is to purchase a financial year diary. These can be back pocket size or A4 book size, a week to an opening. The idea is that whenever you earn income from music you record it in the diary on the date earned- The diary also allows you to keep track of gigs at which your songs are performed and, if it is a big enough diary, you could also include your playlists for APRA purposes. In fact your diary becomes a very important document in which all your music business is recorded and is perfect for recording contract-type negotiations.
Expenses
It is recognised by the Taxation Department that in the course of earning income, musicians also incur expenses. Some of these expenses are obvious. Instruments, instrument repairs, guitar strings, music (if you must play covers!), hiring costs (e.g. PAs and lights), recording costs and the costs of traveling to and from performances are just some of the obvious ones.If you have a room or even part of a room set aside in your house in which you create your music or rehearse or carry on some music related activity that contributes to your music income (e.g. teaching music to others), you can include a proportion of your Gas (for heating), Electricity (light and power), Rent, Insurance and, for home owners, Mortgage interest and Council Rates as legitimate deductions. The proportion you claim depends on the amount of floor space you use. So if you use 10% of the floor space in your house you can include 10% of the above expenses.
Other possible expenses include special clothing (e.g. stage clothing), union and association expenses (such as SCALA membership fees), use of the telephone for (say) arranging gigs and a proportion of your music library (from which you might derive ideas for songwriting, for example). Other expenses such as attending concerts and weekly SCALA performances may be a deduction.
The list of deductions is not exhaustive; it is suggested that you record anything which you consider is a legitimate expense in conducting your business as an original musician. Indeed there is a landmark case of one musician who challenged the (Australian) Taxation Department successfully even though he had not at that time derived income from music. He was, however, able to establish his professional status. He had a room in his house set aside for the purpose of creating music and he spent a certain proportion of his time each week in that room working at the task of producing music and that in the process of conducting that activity he incurred certain expenses.
Substantiation
Musicians MUST be able to supply evidence of their expenses. Receipts of expenditure should be procured and kept. Receipts must show
1. the DATE,
2. the NAME OF THE BUSINESS,
3. the COST and
4. AN ACCURATE DESCRIPTION OF THE GOODS OR SERVICES PURCHASED.Many cash register receipts are NOT adequate for this purpose. In such cases musicians should ask for a written receipt. Where a receipt cannot be procured the Australian Tax Office may be flexible. Purchases below $ 10 do not require a receipt; a signed diary entry will suffice. It's probably better to seek an adequate receipt in ALL cases. Credit card yellow slips are often all that a retailer (e.g. secondhand record and music shops) can supply which adequately describes the goods or services purchased.
Where else do you keep all these receipts but in that trusty diary which you purchased to record your income? A reliable method is to sticky tape each receipt into the diary on the day the expense is incurred. If you have a lot of expenses you'll need a big diary (bigger than back pocket!). Remember to include the receipt for the diary too! ... OR SHOEBOX
Alternatively, the proverbial shoebox method still suits most needs. This leaves the diary free to record only those transactions that cannot usually be backed up with a receipt (e.g. payments to crew or other cash-type expenses). At the end of the financial year you will have to go through the diary page by page or through each item in the shoebox and record the expenses under certain categories such as Production costs (if you are recording), musician payments (if you employ or hire other musicians , Additions to the Music Library (CDs, records,prerecorded cassettes, music books), Office expenses (gas, electricity, rates), Travel and Other expenses (incidentals like stationery, strings, specific instrument or equipment purchases). Also record all of your income as well as income derived from other sources, interest and so on.
The Accountant
It is often wise to seek the services of an accountant, particularly if your tax situation is complicated. Travel, for example, can be factored in a number of different ways depending how far you travel and so on. Accountants and tax agents also have access to electronic lodgement which facilitates a speedy decision on your tax. Accountant services an be expensive but the fee is deductible.Many musicians earn little in comparison to their expenses and, for those who derive income from other sources, the amount of tax paid may be reduced. If you are a musician fortunate enough to earn more than you spend in the course of being a professional musician then the deductions may again reduce the amount of tax paid.
Possible Deductions (Non exhaustive) - Agent's fees, Dry Cleaning, Publicity/promotion, Attendance fees, hairdressing, Recording costs, Bank charges, Hiring fees, Repairs/maintenance, Blank tapes, Home office/studio,Stationery/printing, Books, Insurance, Self-education, Clothing, Interest on loans, Subscriptions, Commissions, Make up/cosmetics, Superannuation, Conferences, etc., Magazines/journals, Tax agents fees, Costumes, Motor Vehicle, Telephone, Demonstration tapes, Music (CDs etc.), Tool replacements, Depreciation on equipment, Photography, Traveling expenses, Donations
NOTE: This article was originally published in SCALA NEWS # 34 in 1993 and revised in October 1994. Please check current and local conditions with your tax agent, accountant or taxation office.
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