Most creative businesses will need to lodge documents with the Australian Taxation Office (ATO) or pay some amount of tax.
There are different types of taxes that may be relevant to your business. The type of tax may also depend on what your business does and your business structure.
Some common taxes include:
- income tax
- goods and services tax (GST)
- pay as you go (PAYG) withholding
- payroll tax.
There may be other more specific taxes that affect your business depending on what your business does. Visit the ATO website for more tax information for businesses and organisations.
This page provides some general information on how different types of taxes may impact your business and what to be aware of if you’re starting out.
Read this page along with:
Not everyone finds tax very exciting – but it is important. Many businesses and organisations hire an accountant or registered tax agent to help them. Moneysmart.gov.au has some information that may help you choose an accountant.
Tax file numbers
A tax file number (TFN) is how the government identifies your business for tax purposes.
If you are an independent contractor working as a sole trader, you can use your individual (or personal) TFN.
If your business is set up as a company, your business will need a TFN.
Your business will need a TFN when you register for an Australian Business Number (ABN).
Learn more about business registrations.
Keep learning:
Common business taxes and how to manage them
Understanding some common business taxes and how to manage them is important to ensuring your business can meet its obligations.
Even if you use an accountant or registered tax agent, businesses are responsible for getting their taxes right.
Some common business taxes include:
Business income tax
Business income tax is tax paid to the government based on how much the business earns. A business needs to lodge a tax return each year – even if it hasn’t earned any income.
When you lodge a tax return, you need to tell the ATO:
- how much the business has earned
- how much tax the business has already paid, if any.
If your business is a company — you need to lodge a company tax return. The information required for a company tax return is more complex so many companies use an accountant or registered tax agent. Income earned by a company is taxed at the company tax rate.
If you’re an independent contractor working as a sole trader — you can lodge an individual tax return. Business income earned by an independent contractor working as a sole trader is generally taxed at the individual tax rate.
Understanding — Assessable income
How much income tax your business pays is generally based on the business’ taxable income. Taxable income is the assessable income for the business less the deductions a business can claim.
Most of the income your business generates will be treated as assessable income.
Assessable income includes:
- gross income from everyday business activities (like sales)
- income that may not be from everyday business activities, like cash prizes and some government payments.
For creative businesses, assessable income may include:
- payments for creative goods or services
- commission income
- royalties (payments when others use your patent or copyrighted material)
- appearance fees
- tips and gratuities
- compensation for things like business interruptions or contract cancellations
- some government grant payments
- subsidies for carrying on a business.
There are also special tax rules that apply to personal services income, that may be relevant to independent contractors working as sole traders.
Personal services income is where more than 50% of the amount received by a business for a contract was for an individual’s labour, skills or expertise. (Not from the sale of goods or use of assets.)
Learn more about What’s included in assessable income and Personal services income on the ATO’s website.
Understanding — Deductions
Deductions are business expenses that your business can claim. A deduction must be a business expense from carrying on your business and directly relate to earning your assessable income.
You must have records of your expenses to claim deductions.
Learn more about Business deductions on the ATO’s website.
Understanding — PAYG instalments
PAYG instalments are income tax payments made throughout the financial year. Instead of paying income tax in one lump sum at tax time, the business makes a series of ‘pay as you go’ tax instalments.
This is so businesses can avoid a large lump sum tax bill at tax time, impacting their cash flow.
Generally, the ATO will require a business to make PAYG instalments based on the amount of income earned and tax paid in the previous tax year.
A business can also apply to voluntarily make PAYG instalments. This can be useful where a business has difficulty estimating its tax liability. For example, where the business is new or has variable income.
You can speak to your accountant or registered tax agent about the best way to make your tax payments.
Learn more about PAYG instalments on the ATO’s website.
In practice:
Juan’s assessable income and expenses from writing
Juan is a writer engaged as an independent contractor by an online media company to research and write feature articles. Juan has also written a published novel for which he receives royalties. Juan’s assessable income will consist of the fees earned from the online media company and the royalty payments from his publisher.
Juan keeps records of the accommodation and travel expenses he incurred as part of researching the feature articles. These expenses were not covered by the online media company. Juan includes these expenses in his deductions and claims them again his assessable income.
Juan also decides to apply for PAYG instalments. This is because Juan’s income varies and he is not sure whether he will have the cash to cover the tax he may be required to pay after lodging his tax return.
If you’re not sure what to do about business income tax — See the ATO’s website for more information. Businesses are responsible for getting their taxes right. Professional advice from an accountant or registered tax agent can help you work out your tax obligations and help you with lodging returns.
Keep learning:
Goods and services tax (GST)
Goods and services tax (GST) is a tax of 10% on most goods and services sold in Australia. GST may apply to the goods and services sold by your creative business, even if you’re working as an independent contractor.
If your business is registered for GST, you must:
- collect the GST from customers buying your goods and services
- then pay the GST to the Australian government.
Your business can pay this through its Business Activity Statements lodged with the ATO.
Your business does not have to register for GST unless:
- your GST turnover is $75,000 or more in a 12-month period, or
- your GST turnover is $150,000 and your business is a not-for-profit organisation.
GST registration is also required for businesses that want to claim fuel credits.
Business Activity Statements (BAS)
If your business has registered for GST, the business must complete and lodge a Business Activity Statement (BAS) with the ATO. Most businesses will need to lodge a BAS quarterly.
A BAS is an ATO form that reports and processes payments in relation to applicable GST, PAYG instalments, PAYG withholding, and other taxes specifically relevant to a business (for example, luxury car tax).
Penalties may apply if you fail to lodge your BAS by the due date.
There is information about BAS obligations on the Australian Taxation Office website. This includes help if you need support with BAS payment obligations.
You can also have an accountant or registered tax agent complete your BAS on your behalf.
Keep learning:
PAYG withholding tax
Pay as you go (PAYG) withholding tax is when a business withholds, or takes out, an amount of money in tax when it pays certain workers.
The business then reports and pays the withheld tax to the Australian government.
PAYG withholding tax means workers do not have to pay large amounts of tax at the end of the financial year.
Your business will generally be required to register for PAYG withholding tax if it makes payments to:
- employees
- directors
- businesses that do not provide their ABN
- contractors who have a voluntary agreement with you.
Sometimes a person supplying a creative good or service may be able to provide a Statement by Supplier. For example, where the person is supplying a creative service as part of a hobby (rather than business activity) and is not entitled to an ABN. In such cases, a business receiving the Statement of a Supply may not have to take PAYG withholding tax.
It is important to seek advice if you are unsure whether you can give or receive a Statement by Supplier for the purpose of PAYG withholding tax.
Learn more about statements by a supplier and hobbyists: creativity for the love of it.
Keep learning:
Payroll tax
Your business may need to pay payroll tax if it employs workers.
Payroll tax is collected by state governments based on the total wages your business pays workers.
The amount of tax is usually decided based on the total Australian wages the business pays each month.
Generally, businesses must register for payroll tax if the total Australian wages of the business is over the tax-free threshold. The tax-free threshold varies from state to state.
Keep learning:
Tax records
Businesses need to keep tax records for at least 5 years.
Learn more about business records.
Managing tax payments and cashflow
Many creative businesses, particularly sole traders, may have periods of low or no income and periods where income is higher. This may mean that in some years you may not have to pay much tax, and in others you may have to pay a lot.
The ATO website has lots of information about businesses and taxes that can help you. You can also seek advice from an accountant or tax agent to help you with how best to manage tax and fluctuating income levels.
Keep learning:
More in this section:
Setting up as an independent contractor
There are lots of independent contractors in the creative industries. When you work as an independent contractor, you have your own business. This page has information to help you work out if it’s the right business structure for you and some basics on setting up.
Setting up as a company
There are lots of things to consider when deciding whether a company is the right structure for your creative business. Setting up as a company can offer benefits, but it is not straightforward and can be costly.
Setting up or joining a co-operative
A co-operative is a business structure that exists to benefit its members. It can be a useful business structure to support creative professionals working in creative industries.
Registering your business
Most creative businesses need to be registered for different things so they can operate.
Business insurance
Business insurance can protect the business and the owner if things go wrong. Some insurances are required by law. Others can be a good idea.
Record keeping for businesses and organisations
Keeping the right business records will help you keep things on track and meet your business obligations.
Employee records
Businesses and organisations must keep employee records, including about working hours, pay, leave and super.
