Tax On Musician's Income In Australia

Peter was the bass guitarist in a band formed and playing in Australia, Mr Curly’s Ducks.  The band had moderate success in Australia, but had much better success in England.  Two of the band members had immigrated from England but had taken out citizenship in Australia.  Peter and the other band member were both born and raised in Australia to Australian parents.  Because of their success in Britain the band decided to move to Britain until they had achieved a wider success, when they would return to Australia.

The band had a final live performance in Melbourne on 10 January 2016 and left for Britain on the 15^th January.  Peter owned a house in Brighton, which he leased out before leaving.  To help pay for the early expenses and airfare to Britain he sold his car for $60,000, which he had acquired for $95,000 in 2010.  He also sold some shares he owned.  He bought the shares for $5,000 in 2011 and sold them for $11,000.  The band won the ARIA award (awards given by the Australian music industry) for best album in November 2015.  Each band member received $20,000 as part of the award.  For album sales and live performances each band member had received $140,000 from July 2015 to the time they left for Britain.

The band arrived in London on 20^th January 2016.  The band took a 12 month lease on a large house on the outskirts of London from which they would live and work.  They had organised a live performance at the Wembley Arena for 27 February.  The concert was a sell-out.  Each band member received the equivalent of $150,000 for the concert.

In September 2016 the band released a new album, “ A Curly Experience”, which was recorded at Abbey Road, London. This album sold well in Britain, parts of Europe and moderately in America as well as in Australia. Each band member received royalties for the sales in Britain, Europe and America the equivalent of $250,000 to the period 30 June 2017. Royalties for each band member in Australia for the same period was $30,000. The band won the ARIA award for best single in December 2016 and each band member received $10,000.

The band decided to return to Australia in August 2017 and arrived back in Australia in October.  Peter had to rent a flat as his own home in Brighton was leased until the end of 2018.  The band continued to receive royalties from overseas sales of their newest album.  Each band member received $15,000 from these royalties.  $11,000 of this amount was generated up until the time the band arrived back in Australia.  In November 2017 the band also won the best Album of the year from the British Music Association for their latest album.  Each band member received the equivalent of $16,000.

Advice Peter of the amounts that will be assessable in Australia for the years identified in the facts.

With the help of the given case study one would understand the taxability of income for musicians. There are several cases held regarding the taxability of income for musicians, since there was no separate law for them.  Hence in early 1980s Australia Taxation office had introduced certain provisions regarding the income for musicians. The provisions directly points out the income needs to be taxed and the income which needs to be exempt. It also highlights the expenses, which are spent for organizing live shows and how such expenses should be dealt while computing the income for a musician. The description of the given case study is given below in detail.

This case study is about a guitarist named as Peter who is a member of a band.  Two of the members were not an Australian citizen while the other two were the residents of Australia. Peter was from Australia. The band didn’t have much success in Australia so they have planned to move to Britain to taste some better success. They have got some success in Britain, so they decided to move to Britain until their album is a much bigger success.  Their return to Australia would be after the wider success, which they will gain outside Australia. Now while doing live performances and selling their album CDs they have earned certain incomes, which is discussed below in detail. But since we need to discuss only from Peter’s point of view, only Peter’s income is discussed below:

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 20^th 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.

Peter's Income and its Taxability

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.

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 motorcar, which can carry a load of less than one tonne or fewer than nine passengers are exempt from capital gain tax.

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.

The ATO office has made separate guidelines for musicians and other live performers. Musicians and other live performers do 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 CD’s at gigs or online
• Grants

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 were not directly related then expenses would not be deducted.

Now, every income will be discussed in detail with the provisions mentioned above that whether the income would be taxed or not. The discussion of every income is given below in detail:

• In the first instance Peter had sold his car, which was purchased in the year 2010 for $95,000. Since they didn’t had enough money Peter was forced to sell off his car at a loss of $35,000. As per Australian Taxation office if a capital asset is sold at a profit then capital gain tax needs to be charged on it, if it is sold at a loss then no tax is charged on it. There are certain capital assets, which are directly exempt from the provisions of capital gain tax. If an individual is owning a motorcar which is less than one tonne or can carry less then none persons then such car is exempt from capital gain tax. Peter sold the car in the year 2016, but such loss would not be considered in tax since motorcar is exempt. The same was in the case of South Australia v Totani (2010) where car sold at a loss was not charged. If the car’s weight were more than a tonne then capital gain tax would have been applicable. The given loss would not be considered in the assessable income of 2016.
• In the second scenario Peter had sold another capital asset. But this time income would be considered in the assessable income since shares are not exempt from capital gain tax. He bought the shares in 2011 for an amount of $5,000, which was sold by him in 2016 at 11,000. He held the asset for a period of 5 years. When an asset is held for more than a year then long-term capital gain gets attracted. In this case indexation method needs to be applied. Shares were purchased in the year 2011 for $5,000 where cost inflation index was 785. The cost inflation index in 2016-17 was 1125. Hence indexed purchase cost for the shares would be $5,000 *1125/785 = $7,548 approx. Shares were sold at $11,000, hence capital gain in this case would come to $11,000 - $7,548 = $3,452. The same was given in Income Tax Assessment Act 1936 and was also similar to the case of French v FC of T.
• 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.
• From July 2015 till the time they left for Britain, they were giving live performances in Australia itself. Their live performances were successful in Australia as well, due to which they have been compensated with $140,000 for each band member. That means Peter had also receive $140,000, hence this as to be included in the assessable income of Peter for the year 2015. It has been clearly mentioned in the IncomeTax Assessment Act 1936 that any income, which is generated by musicians during a live performance, needs to be taxed under Australian Income Tax Law. Big musicians like Kylie Minogue, nick Cave also pays tax on the income, which they have earned by giving, live performances. Hence Peter’s income also needs to be get taxed. This has to be included in the year 2015.
• On 20^th 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.
• 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.
• The album was so successful in 2016 that they won ARIA award again in Australia. Each of the band members had received $10,000 from the Australian government. Hence this amount earned by Peter needs to be taxed in the year 2016.
• 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.

Conclusion:

All the provisions in link with the case study have been discussed above and now we need to compute the total amount which needs to be taxed in the year 2016, 2016 and 2017 needs to be computed.  

The amount, which needs to be taxed in 2015, would be:

• 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

The amount, which needs to be taxed in 2016, would be

• Profit earned by sale of shares - $3,452
• 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 $193,452

The amount, which needs to be taxed in 2017, would be:

• 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 + $193,452 + $31,000

= $384,452

References

Aria Awards - Home (2017) Ariaawards.com.au <https://www.ariaawards.com.au/>

Austlii: Austlii Databases (2017) Austlii.edu.au <https://www.austlii.edu.au/databases.html>

Barnet Jade - Find Recent Australian Legal Decisions, Judgments, Case Summaries For Legal Professionals (Judgments And Decisions Enhanced) (2017) Jade.io <https://jade.io/j/?a=outline&id=65266>.

Dreyfus, Kay, "Breaching The Profession: The Musicians' Union Of Australia, Immigrant Musicians And The Post-World War II Australian Music Industry" (2012) 34 Musicology Australia

Freebairn, John, "Who Pays The Australian Corporate Income Tax?" (2015) 48 Australian Economic Review

Horvath, James L and David Wallen Chodikoff, Taxation & Valuation Of Technology (Irwin Law, 1st ed, 2008)

Performing Artists 2016 (2017) Ato.gov.au <https://www.ato.gov.au/Individuals/Tax-return/2016/In-detail/Publications/Performing-artists-2016/>.

Reporting Your Foreign Employment Income (2017) Ato.gov.au <https://www.ato.gov.au/individuals/international-tax-for-individuals/going-overseas/working-overseas/reporting-your-foreign-employment-income/>

South Australia V Totani (2017) Eresources.hcourt.gov.au <https://eresources.hcourt.gov.au/showCase/2010/HCA/39>

Working Out Your Capital Gain (2017) Ato.gov.au <https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/>.