Considerations for freelancers
As a creative talent in the modelling, photography, makeup artist, or influence fields, you are likely to be working as a ‘freelancer’. This means that the work you are doing is usually short term in nature and you are providing services to many different businesses.
As a freelancer, there are a number of things that you need to consider to ensure that you are complying with your obligations and optimising your financial position. We've had our friends at Gunderson Briggs Accountants pop together some tips for Tax time!
What is an ABN and do you need one?
An Australian Business Number (ABN) is an 11-digit number that is registered to anyone that has a business. It is a unique identifier which helps to identify your business to the government and community. If you are an influencer and your activities have become more than a hobby you may have to register for an ABN. There is no cost to apply, and you will usually receive your ABN within a couple of days.
If you do not have an ABN and invoice clients for work completed, your client is required to withhold tax from the income they pay you at the highest marginal tax rate of 47%. Make sure you get professional advice on if you need an ABN or TFN for the work you do.
Tax considerations
Once you have an ABN and earn more than $75,000 in a financial year under your ABN, you will also need to register for Goods and Services Tax (GST). GST is a tax charged on most goods and services sold or consumed in Australia. Once registered, you will need to charge 10% GST on your income, and you will also be able to claim back the GST you pay on business related expenses.
The GST that you have received on your income and paid on expenses will need to be reported to the Australian Taxation Office (ATO) in a Business Activity Statement (BAS). BAS’ are usually prepared on a quarterly basis, with lodgement due 28 days after the end of the quarter.
In addition to BAS’, you will also need to report your annual income and expenses to the ATO in an annual Income Tax Return (ITR). If you do not have a Tax Agent, your ITR will be due 4 months after the end of the financial year on 31 October. If you do have a Tax Agent, additional lodgement extensions will be available.
Tips for the end of the financial year
With 30 June fast approaching, it is time to start preparing for the end of the financial year.
The areas that you will need to consider will vary depending on the stage of your business and the level of profit that you have generated.
If you have had a strong financial performance for the year and are likely to be in a high income tax bracket, you may want to consider the following:
- Deferring income – Can you defer issuing invoices until after 30 June 2021?
- Maximising expenses – If there are expenses you need to incur, can they be brought forward so they are incurred prior to 30 June 2021? This may include the acquisition of business assets under $150,000, which are immediately deductible at the time they are acquired.
- Superannuation – If you are looking to maximise your superannuation contributions, make sure payments are made prior to 30 June so they are deductible in the current financial year.
If you have not had a strong financial performance for the current financial year, conversely you may consider bringing income forward and deferring expenses to the next financial year.
It's important to keep detailed records through the year of income and expenses so you can minimise the hassle and fuss at tax time. Don't forget to keep receipts, travel records, and understand what deductions you can claim related to your freelance work.
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