When it comes to tax time for the arts, Michael Fox has seen it all. As Owner and Director of Michael Fox Arts Accountant & Valuer, he has been shaping the way creatives and arts organisations ‘do tax’ for nearly 30 years.
He believes that wins are often in the details. Fox says one of the greatest things that lets creatives down is their misperceptions of what they should do at tax time. So we have decided to bust open some of those ‘myths’ causing many in the sector losses at their own hand.
Myth 1: I can just do it
Many creatives and small arts organisations believe they can get by doing their own tax return, and rather put the money spent on an accountant back into their business.
Michael Fox says that ‘the amount of money saved by not paying an accountant would be dwarfed by the tax savings and the administrator savings captured by a professional. ‘For example, we were helping a new client who missed out on government grants during the last Melbourne shutdown by going over their accounts. We found out the reason they didn’t get relief support is that they had failed to renew their business name. A simple $35 renewal fee had cost them $60,000.
‘And, the costs of accounting services are tax deductible anyway.’
If you don’t know the regulations and requirements, you will miss things.Michael Fox, Art Accountant
Myth 2: Accountants are all the same
While you may recognise that your bookkeeping skills aren’t great, and seek a generalist ‘chain-store’ bookkeeper to help you out, Fox says you will get what you pay for. ‘It is the difference between going to your GP and a specialist doctor,’ he said.
‘Like a specialist, we know the latest research and regulations for your sector, so we can make decisions that are more beneficial to our clients, such as eligibility for income averaging, maximising travel claims for performers, superannuation claims, managing cultural gifts, and so on.’
Fox noted that many arts companies and creative professionals have experienced great upheaval and change over the past two years, and are resetting for the future. ‘This big reset at the moment is where a specialist discussion about tax comes in.
‘Many of us are asking what is the best way to live, and how to go about our future. Now is a good time to address those things financially, before you throw yourself back into the “new normal”. Specialist advise is crucial to planning the way you move forward,’ he explained.
Myth 3: I don’t need to pay tax; I don’t earn enough
Do you often wonder why you bother taking a day out of the studio to trawl through tax receipts to submit a return when you don’t earn enough to ‘count’, and never get a return year after year?
Fox answers it simply. ‘The Tax Office could penalise you on a late return; that is a good enough incentive isn’t it?
‘The biggest question we get asked is “why do I have to pay tax when I’m self-employed”. You may feel that paying tax as a sole trader is not fair as you don’t earn that much. But paying tax is just part of running a business,’ he said.
It is about minimising the tax, not eliminating the tax.Michael Fox, Arts Accountant
‘You need to look upon the tax office as another supplier to your practice – just like buying art materials,’ Fox said. ‘Plus, paying tax means that you are successful in what you do, so that’s a positive thing.’
Myth 4: Tax is too rigid for fluctuating incomes
‘A lot of people struggle to read financial statements,’ said Fox. ‘At the end of the day, they’re just a summary of what you did – a report card if you like. There should be no surprises there. If you decide to take six months off, for example, then that will be reflected in the accounts. It doesn’t mean that you are failing in your business; you are just having a quiet year.’
Fox said another example of managing fluctuations across tax years is how grants are taxed. ‘A lot of grants get issued in June, but artists and art companies will not perform an acquittal until the next financial year. We would not recognise that income until the services are performed. It is about aligning the correct amount of tax in a given year.’
Myth 5: The shoebox of receipts works fine
‘If you want to keep a shoebox of receipts that is your choice, but the easiest way to do your tax is to make sure everything goes through a bank statement or a credit card statement,’ Fox told ArtsHub.
‘It is a quite easy to summarise those types of reports, however, knowing what is claimable from those statements can come down to a solid conversation with your accountant,’ he continued.
Fox is constantly amazed at the receipts client present to claim. ‘Car expenses is a good example. You can only claim them under certain circumstances, and you need a log book to map that use. So throwing petrol and your rego receipts in the shoebox is not going to be helpful if you do not have a log book..
‘But there are expenses that are clearly claimable, so it’s important to have a discussion with an accountant and step through the parameters of your creative business and outgoings,’ he added.
Fox told ArtsHub that now is the perfect time to have those discussions to wrap up the past year, and set in place some good systems and knowledge around what you can and can’t claim to start off the next tax year.
Myth 6: GST Registration is just too much work
Fox says there is a lot of misconception around GST in the creative sector. ‘You only need to be concerned with it when your business crosses the $75,000 threshold. Most people think you have to register the moment you pass the turnover test, but in certain circumstances you don’t have to until you reach $75,000 in two consecutive years,’ he explained.
‘A lot of people in the arts operate in that shadow border land around $75,000. If you are clearly over, then you should register. But again, you have a period in which to do that. So, take advantage of the GST legislation and do it at a time that suits you, when you have got your accounting systems in place,’ Fox added.
How you operate is pivotal to your tax. He said a lot of creatives wonder at what point they need to shift from being a sole trader to operating as a company. ‘It really only works for you to move into a company if you are earning in excess of $100,000 a year.
‘By not seeing an arts tax specialist, you could end up paying way too much tax, when that refund could be reinvested into their studio or in equipment for their practice,’ Fox concluded.