Who is a Special Professional?

A special professional is an artist, composer, writer (this category includes a computer programmer), inventor, performer, production associate, or sportsperson. Theatre entrepreneurs are not special professionals.

Special Professional Income

Inclusions

  • 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.

Exclusions

  • coaching or training competitors

  • umpiring or refereeing sport

  • administering sport

  • being a member of the pit crew in motor sport

  • being a theatrical or sports entrepreneur, or

  • owning or training animals

  • Distributions from Trusts

 Benefit of Income Averaging

You are subject to income averaging – a concessional tax treatment – if:

  • you are an individual who is an Australian resident at any time during the income year

  • you are a special professional, and

  • you satisfy the first-year requirements in either the current income year or an earlier income year.

  • The first year that special professional income averaging applies is the first income year that the taxable professional income (TPI) you earned as a resident special professional individual is more than $2,500. This is known as year 1.

 Average Taxable Professional Income

Generally, average taxable professional income (ATPI) in an income year is one-quarter of the sum of your TPIs for the preceding four years. Special rules apply for working out the ATPI if your first income averaging year was less than four years ago. So, in the first four years, ATPI is worked out as follows if you were an Australian resident during the year immediately before your year 1:

  1. year 1 = nil

  2. year 2 = one-third of TPl in year 1

  3. year 3 = one-quarter of the sum of your TPI in years 1 and 2

  4. year 4 = one-quarter of the sum of your TPl in years 1, 2 and 3.

 Above Average Special Professional Income

Your above-average special professional income is the amount of TPI you earned during the income year that is more than your average TPI.

 Resident of USA earning Performance Income in Australia

Whenever a resident of USA earns Income for Performances in Australia, only the amount in excess of $10K is taxed in Australia as per ‘Double Taxation Avoidance Agreement’ between Australia & USA.

 Withholding Taxes deducted in USA & Canada

  1. When income is earned through Performances by an Australian Entity (Company/Trust/Partnership) in USA/Canada, any credit for taxes paid in USA/Canada will not allowed in Australia for these entities.

  2. In such a case, the Key Managerial Personnel of the respective entity should lodge an Individual Non – Resident Tax Return in USA/Canada and claim refunds, if any.

  3. The above provisions are stipulated by Article 17 of the ‘Double Taxation Avoidance Agreement between Australia, USA & Canada.These clause in the DTAA is applicable only for Performing Artists.

 Foreign Tax Credit Cap

  1. For a resident of Australia, the entire income earned globally is subject to tax in Australia.

  2. The ATO is allowing the tax payers to avail the benefit of claiming credits for taxes outside Australia.

  3. However, such credits are subject to certain limits.

  4. Taxes paid outside Australia <= $1K is allowable without any restrictions.

  5. Over and above $1K, it is subject to a cap as explained below:

Step 1 – Calculate Income Tax on the Global Income

Step 2 – Calculate Income Tax only on the Australian Income

Foreign Tax Credit Cap = Tax in Step 1 – Tax in Step 2

 Travel Per Diems

  1. Tax Payers who travel extensively throughout the year for in relation to their Occupation/Profession (Special Professionals travel more than any other tax payers for Performance engagements).

  2. Claims can be made on Fixed Rate/Day at a rate specified by the ATO. Reference: https://www.ato.gov.au/law/view/document?DocID=TXD/TD201719/NAT/ATO/00001

  3. Rates prescribed are uniform throughout Australia and varies for travel outside Australia based on the Cost Group to which the country belong to.

  4. Claims can be made only for Food & Incidentals.

  5. Claims for Travel within home city cannot be claimed.

  6. Claims can be made at the prescribed rates irrespective of the actual expenses incurred.

  7. Partnership Firms and its Partners are not allowed to claim this.

  8. Travel/Tour Diary should be maintained mandatorily.

Arts Business Test

  1. We all knew the losses from a Sole Trader Business/Share of Losses from a Partnership needs to be deferred for future income years if none of the 4 tests (Assessable Income Test, Profits Test, Real Property Test & Other Assets Test) are passed.

  2. However, in case of Sole Trade/Partnerships involved in ‘Arts Business’, there is an additional benefit of using ‘Arts Business Test’ to offset the losses in the current year itself.

To pass the ‘Arts Business Test’, the assessable income from other sources (excluding Capital Gain) should be <= $40K.