The rise and rise of OnlyFans, YouTube, TikTok and other online platforms offer amazing opportunities for content creators to generate an income from their side hustle. As these opportunities increase alongside the sometimes-considerable income streams, the Australian Tax Office (ATO) has issued warning to the rising industry.
How are content creators taxed?
An update released by the ATO in April outlines their expectations for how content creators will be assessed for tax purposes. The bottom line is there are many content creators who are generating benefits in many different forms and the ATO wants to ensure everyone understands their expectations.
Income tax on money, gifts and goods
If you are a content creator generating income, then it’s likely to be assessed for tax purposes unless what you are doing is a genuine hobby with no expectation of generating a profit. For subscriber-based sites like OnlyFans, there is an expectation the activities are carried out to make a profit.
The ATO’s guide also makes it clear that assessable income covers not only money but appearance fees, goods you receive, cryptocurrency or gifts. This is where the problem lies for most content creators. Income in the form of money is easy to track and report. Non-monetary income in the form of goods is not so easy. If you receive a gift from a company for you to keep, the ATO expects you to declare the market value of the gift as income and pay tax on that value. Of course, there are some instances where this may be a little grey and this will come down to specifics of the situation.
The timing of when you receive income is also important for content creators. The tax rules consider that you have earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct”. If you are an OnlyFans content creator for example, this is when your OnlyFans account is credited, not when you direct the money to be paid to your personal or business account.
So, hiding it from the ATO in your platform account won’t protect you from paying tax on it. And, from 1 July 2023, a new reporting regime will require electronic distribution platforms to report their transactions to the ATO. The regime starts with ride sharing and short-term accommodation platforms, then extends to all other platforms, including OnlyFans, from 1 July 2024.
Do I need to register for GST?
Generally, once you earn or expect to earn $75,000 or more per annum, you will need to register for GST. The exception to the $75,000 threshold is ride-share drivers who must have an ABN and be registered for GST regardless of how much they earn.
However, even if a content creator is required to register for GST, this doesn’t necessarily mean that all of the money and goods they receive will trigger a GST liability. Even if GST-free income is received from foreign resident customers, it will normally still be possible to claim back GST credits for the expenses incurred in connection with these activities. Learn more here.
What deductions can I claim?
The upside of being a profit-making venture is that if you spend money to generate income, you can claim a deduction for certain expenses that directly relate to that income. Items such as video production equipment, microphones, lighting and so on may be deductible although in some cases the deductions will be spread over a number of income years.
However, you can’t normally claim items such as cosmetic surgery, gym memberships, ‘every day’ clothes, or the cost of your hairdresser ‘because you need to look good’. The Tax Office does not consider that these are directly related to how you earn your income and that in many cases, these are still primarily private expenses.
When is a side hustle a business?
The difference between activities you do in your spare time and running a business can be a fine line. There isn’t a unique test for what determines whether you are carrying on a business versus a hobby but factors such as:
- the regularity of your transactions
- whether or not you are marketing your business
- whether you intend to grow a business and turn a profit
- the size, scale and permanency of your activities
- whether you operate in a business-like manner
…all go help to determine whether what you are doing is a business or just a hobby.
If your activities are just a hobby, then the income is not assessable, and the expenses are not deductible. If you are in fact conducting a business, you need to declare the income earned, but you also get to claim deductions for the cost of the business activities.
The ATO has put together a webpage with lots of helpful information about side hustles and what you may need to bear in mind when it comes to tax. Click here to read.
Source: Smart Business Solutions