tax on Musicians Income

Question: Discuss about the Advice Peter of the amounts that will be assessable in Australia for the years identified in the facts. Answer: This case study highlights the provisions of income which is assessable in Australia. After understanding the case study in detail one would understand the provisions of income tax in Australia. This case is about a band which has four members in it. Out of the four two are from Australia and other two are British citizens but have taken citizenships of Australia. But in the given case we would study only about the incomes which were earned by one of the members named as Peter. Peter was an Australian resident which also had a house in Australia. He had leased out his house on rent since most of the time he is in Britain with his band. The band was mostly successful in Britain and other countries so they had decided to move out of Australia. Their thought was to first be successful in Britain and then come back to Australia. During their phase of band they have earned several incomes in several years which needs to be taxable in Australia. Musicians should be treated as normal tax pa yers when determining assessable income. There are various provisions on which all these incomes should be taxable. Below description of all the incomes are given which was earned by them in respective years: To pay for the expenses and airfare Peter had sold his car for $60,000 which was purchased in 2010 for $95,000. This income would be considered under Capital Gain and capital gain tax would be charged on it and would be taxable in 2016. To bare more expenses had also sold his shares for $11,000 which he had bought it in 2011 for $5,000. Even in this case Capital gain tax needs to be charged on it. Their musical band had won ARIA award in Australia for best album in the year 2015. Each member had earned $20,000. This income should be taxable as other income. Till the time their band left for Britain, they were performing live shows in Australia for which each band member had received $140,000 from July 2015 till 20th January 2016. This is their primary income and needs to be taxed as well. The musical band had done a concert in Britain for which each band member had received $150,000. This income also needs to be taxable. Their band was a success in Britain. They had released an album in September 2016 which was successful. It was well sold in Britain, parts of Europe and parts of America and Australia as well. Due to good sales each band member had also received $30,000 as royalties. This income needs to be taxed s royalty income earned. Again in December 2016 band have won ARIA award in Australia for which each member had earned $10,000. This also needs to be taxed. The band continued to receive royalties in the year 2017 for the newest album. Amount received by each member was $15,000. In 2017 their album was awarded with best album of the year award by British Music Association. Each band member had received $16,000 from the association. To know whether all the above mentioned incomes are taxable or not, one needs to understand the provisions of assessable incomes in Australia. Rule: As per Australian taxation law capital gain or loss on an asset is the difference between the purchase price of the asset and the money which was received when it is disposed. Most of the personal assets are exempt from capital gain tax like home, car, furniture etc. A motor car which can carry a load of less than one tonne or fewer than nine passengers are exempt from capital gain tax.[1] When shares are sold then it would also attract capital gain tax. Shares are not exempted like cars. Capital gain tax needs to be charged on the profit earned by selling shares.[2] The ATO office have made separate guidelines for musicians and other live performers. Musicians and other live performers does not have fixed income, their income may be very high or may be very low as well. Incomes which needs to be taxed under Australian income tax are: Any advance or royalties received for publishing or any album. Live performance Merchandise Synch licensing Selling CDs at gigs or online Grants [3] All the expenses which are related to the business of the band should be deductible under the Australian tax system. But these expenses should be directly related to the income which needs to be taxed. If the income is not directly related then expenses would not be deducted[4]. Application: Now all the provisions mentioned above needs to be applied in the given case. The discussion for each of the income earned by Peter is given below in detail: Peter had to sell his car so that he can bare his flight and other expenses. He had sold his car at loss of $35,000. Capital Gain Tax Australia clearly states that all personal asset of an individual would not be considered as a capital asset and hence no capital gain tax should be charged on it. Since the car was owned by Peter, it is assumed that the car is for less than 9 individuals and less than one tonne. Hence on the basis of this provision capital gain on the car sold by Peter would not be considered under assessable income for the year 2016. This point was very similar to the case of Fosters Australia Limited v Commissioner Concerned. Income assessable for the year 2016 would be NIL.[5] As per Australian Taxation Office if an individual has invested in any shares of company then it should also be treated as a capital asset. When shares are sold by the concerned person then capital gain tax needs to be charged on it. The given case is very similar to the case of South Australia v Totani (2010). Similar decision should be taken in this case where Peter had sold his shares at a profit for $6,000. This amount needs to be included while computing the assessable income of Peter. Income assessable for the year 2016 was $6,000.[6] Peter was working in a band which used to make music. They had a brand new album in Australia in 2015 for which they have won ARIA Award. Each member had received $20,000 as award. Since they were in a music band this needs to be considered as a partnership. Hence they should be taxed based on the profits which are shared among them. Australian Taxation Office clearly states that all the incomes earned through live performance should be included under assessable income. Tony Hollis was a live performer in Australia and after his album became a success, al the income earned by him through awards were taxable. In the same way award of $20,000 earned by Peter should also be included in the assessable income. Income assessable for the year 2015 was $20,000.[7] Their band was about to leave Australia in January 2016. Till that time they were giving live performances in Australia itself. They did live shows from July 2015 to 20th January 2016. For their live shows each member was given $140,000. As mentioned in the above point that any income received for giving live performance should be taxable, amount of $140,000 should also be taxable. Tony Hollis was a live performer in Australia and after his album became a success, al the income earned by him through awards were taxable. Income assessable for the year 2015 would be $140,000. [8] On 20th January, the entire team had gone to Britain for better prospects. They had received a great response for their live shows and performances for each member was awarded with $150,000. As discussed in the above two points, this is an income earned through live performance, hence it would be included in the assessable income of Peter. Apart from the income earned by them, all the expenses borne by the band in relation to the mentioned income should also be deducted from their income. Income assessable for the 2016 would be $150,000. [9] In September 2016, they have released an album in Britain which was very successful. Due to such a huge success every band member had received $30,000 as royalty. As per Australian Taxation Office royalty income earned by a musician should also be included in the assessable income. Music royalty have a very strong linkage to the individuals. In such cases musicians have the copyright to create music and can also license it for performances independent of corporates. Now since Peter and his colleagues has the copyright of the album, they are entitled to receive royalty. This royalty has to be considered in the assessable income of Peter. This has to be included in the year 2016. [10] Again in 2016 their band had won ARIA award in Australia for the new band released. Each member had receive $10,000. This amount would also be considered in the assessable income for the year 2016.[11] In the year 2017 band was continuing to receive royalty for the band which was released in the year 2016. Every member received $15,000 as royalty. Hence the given amount needs to be included in the assessable income for the year 2017. Now Britain had awarded the band in 2017 for their new album which was released in the year 2016. Each member had received $16,000 as an award. As per the provisions which were discussed in the above mentioned points, this royalty income also needs to be included in assessable income.[12] Conclusion: The total assessable income for Peter for the respective years are given below: In the year 2015 Peter had earned the following income which needs to be included in the assessable income: ARIA award earned by Peter amounting to $20,000 Amount received for live performance - $140,000 Total amount assessable in 2015 would be $160,000 In the year 2016 Peter had earned the following income which needs to be included in the assessable income: Profit earned by sale of shares - $6,000 Amount earned for live performance in Britain - $150,000 Royalty received for the new album 30,000 ARIA award received in Australia - $10,000 Total amount assessable in 2016 would be $196,000 In the year 2017 Peter had earned the following income which needs to be included in the assessable income: (ato.gov.au, 2017) Award received in 2017 for the album released in 2016 - $16,000 Royalty received in 2017 - $15,000 Total amount assessable in 2017 would be $31,000 Total assessable income for Peter would come to Year 2015 + Year 2016 + Year 2017 = $160,000 + $196,000 + $31,000 = $387,000 References artslaw, 2017. artslaw. [Online] Available at: https://www.artslaw.com.au/case-studies/entry/tony-hollis-performers-rights-to-payment-and-royalties/ [Accessed 5th April 2017]. ato.gov.au, 2017. ato.gov.au. [Online] Available at: https://www.ato.gov.au/individuals/international-tax-for-individuals/coming-to-australia/paying-tax-and-lodging a-tax-return/what-income-you-pay-tax-on/ [Accessed 5th April 2017]. globalpropertyguide, 2017. globalpropertyguide. [Online] Available at: https://www.globalpropertyguide.com/Pacific/Australia/Taxes-and-Costs [Accessed 5th April 2017]. Government, A., 2017. ato.gov.au. [Online] Available at: https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out your-capital-gain/ [Accessed 5th April 2017]. guides.dss.gov.au, 2017. guides.dss.gov.au. [Online] Available at: https://guides.dss.gov.au/guide-social-security-law/4/3/9/40 [Accessed 5th April 2017]. HighCourtofAustralia, 2017. eresources.hcourt.gov. [Online] Available at: https://eresources.hcourt.gov.au/showCase/2010/HCA/39 [Accessed 5th April 2017]. indiankanoon, 2017. indiankanoon. [Online] Available at: https://indiankanoon.org/doc/52028/ [Accessed 5th Aoril 2017]. Musicindustry, 2017. musicindustryinsideout. [Online] Available at: https://musicindustryinsideout.com.au/tax-guide-musicians/ [Accessed 5th April 2017]. Government, A., 2017. ato.gov.au. [Online] Available at: https://www.ato.gov.au/General/capital-gains-tax/cgt-exemptions,-rollovers-and-concessions/exemptions/ [Accessed 5th April 2017]. Punchbuggy, 2017. artslaw. [Online] Available at: https://www.artslaw.com.au/art-law/entry/tax-for-artiststips-for-a-stress-free-tax-return/ [Accessed 5th April 2017]. royaltyexchange, 2017. royaltyexchange. [Online] Available at: https://www.royaltyexchange.com/learn/music-royalties#sthash.ZYALcZvk.dpbs [Accessed 5th April 2017]. smh.com.au, 2017. smh.com.au. [Online] Available at: https://www.smh.com.au/entertainment/music/ten-australian-artists-you-should-be-listening-to-right-now-20151102-gkona3.html [Accessed 5th April 2017].