From: deleeuws@peg.pegasus.oz.au
Newsgroups: misc.taxes
Subject: Australian Tax Averaging for Artis
Date: 9 Nov 92 02:43:00 GMT
Nf-ID: #N:peg:201900001:000:6518
Nf-From: peg.pegasus.oz.au!deleeuws    Nov  8 21:43:00 1992


 
Income Averaging or "Raiders of the Lost Art"
 
 
Setting the Scene
 
As the Winter days start to shorten, our thoughts start to wander 
to  the great mysteries of life  " Why am I here ?" "How was  the 
world started,  was it creation or was it the big bang" and " How 
do I do my Income Tax".
 
To solve at least the last of these we  make our way to the Mecka 
of sages that specialise in solving this problem,  affectionately 
known  as  "My Accountant" .These sages line the great  Greenhill 
Road  in their marble and glass temples or the quiet suburbia  of 
Walkerville Terrace .
 
In  preparation  for this meeting (which most people describe  as 
only second to going to the dentist) we have collected  artifacts 
known  as  "receipts" and "group certificates "in the sacred  ark 
called the "shoe box" and have at least taken the plastic wrapper 
off the great book called the "Tax PacK".
 
Cathy  a  young performer has completed these sacred rituals  and 
enters the office of "Her Accountant" and the interview begins. 
 
Lou:      "Good Evening Cathy how has your year been "
   
Cathy:    "I  have  had a very busy year as well as my  part-time          
          job  of  50 hours a week in the office of  the  theatre 
          company  office ,  I appeared in another commercial for 
          which  I  got $5000 and received a $1000 from A Play  I 
          was in."
   
Lou:      "It  sounds like the "Income Averaging" of the Tax  Act 
          will apply to you."
 
Cathy:    "'Income Averaging' whats that?"
 
Lou:      "I'm glad you asked that !" 
 
          Since    1986/87   artists,    composers,    inventors,           
          performers,  producion associates, active sportspersons 
          and  writers have been eligible to have the  aggregrate 
          amount of their abnormal or above average income  taxed 
          at what amounts to a concessional rate. "
 
Cathy:    "Do  you  mind saying that slower and in English I  can          
          understand".
.pa

Lou:      "Let  me  show  you using your income  for  this  year.          
          Firstly,   you  are eligible for this special treatment 
          because as a performer you are an "eligible person" and 
          a resident of Australia.
 
          Secondly, you have earnt in excess of $2500 in eligible           
          taxable  income that being the $5000 for the commercial 
          and the $1000 from the play. 
 
 Salary from the Harrison Ford Theatre Company       $17000 
 Fee from the "Adventure Land" commercial              5000
 Fee for Play "Eye of the Tiger"                       1000
                                                     ------- 
                                                     $23000 
                                                     =======
 
Well the $17000 from the theatre company is not what is known as 
eligible income  but is regarded as normal income as it is to do 
with an office position. 
 
Your other income from the commercial and the play is known as 
"abnormal Income" and is subject to averaging as follows :
 
Tax - Normal Income ($17000)                   $2320
 
Tax -Abnormal Income
     (17000 + 20% of $6000)
     = 17000 + 1200
     = 18200
    tax theron $ 2560
                                 
    Tax on abnormal income 5 * ($2560- $2320)   1040
                                             ----------
TAX PAYABLE AVERAGING SCHEME                   $3360
                                             ==========
 
TAX PAYABLE UNDER NORMAL ASSESSMENT           $ 3934
 
TAX SAVING                                    $  654 
 
 
The  tax  department treat this as a rebate in  your  assessment. 
From  then the abnormal income is referred to previous years to a 
maximum of four.
 
Cathy:    "You  mean  I  actually save tax,  why  would  the  tax          
          department do this"
 
Lou:      " Yes you do save tax, which makes it good news for the 
          arts industry  in that the Commonwealth Income Tax Laws 
          recognise  that certain taxpayers can have erratic  and 
          fluctuating incomes.  So rather than having a large tax 
          bill  one  year  and  then  nothing  in  the  next  the 
          "averaging  Provisions" allow some people to  "average" 
          their income.


Cathy:    "What  happens when my income falls below the  average, 
          will I be taxed at a higher rate then."
                        
Lou:      "No,  the  system  works in such a way that  when  your 
          income  falls  below the "average" then the  income  is 
          effectively taxed at the normal rates.  This happens by 
          the concept of "average eligible taxable income" coming 
          into  play  in year 2 and the abnormal income  must  be           
          above this to have an averaging effect."
 
 
 
Cathy:    "Do my deductions such as theatre tickets,  home office           
          expenses,   hairdressing,   make   up,   magazines  and 
          journals,  publicity  shots,  telephone and travel have 
          anything to do with all this"
 
          Cathy upends box of receipts.
    
Lou:      "Its  good to see that you have kept all your  receipts 
           this year.
 
          Yes,   your tax deductions do affect the calculation of 
          your  average  income.  These must be matched  to  your 
          Eligible  assessable  income (the Commercial  and  play 
          Income) and the ineligible expenses (your theatre group 
          income) ". 
 
Cathy :   "Lets see if I have got it !
 
          As  I am a performer  (artists,  composers,  inventors,           
          production associates, active sportspersons and writers 
          are  also  eligible) then income from this activity  is 
          known as "eligible taxable income" and this is taxed at 
          the  average rate of tax which one-fifth of the  amount 
          would  have  borne if it had been the top slice  of  my 
          income." 
                                                      
Lou:      "Could'nt have said it better myself" 
    
Cathy:    "Just  the  same I'm glad I don't need to fill the  tax 
          return out"
 
Lou:      "This  like  so many areas in Income Tax  does  require           
          assistance from an accountant or tax advisor,
 
          So lets get it all down in your return 
          "Do you think you could summarise all these next year?" 
          
          {pointing at the receipts}
 
Newsgroups: misc.taxes