When you need to pay the ATO

If you earn an income from being a social media influencer, there is a fine line between what is considered taxable and what isn’t. Here’s a rundown of when, and how much, you need to pay the Australian Taxation Office (ATO).

A social media influencer typically generates a large following of enthusiastic, engaged people who follow their posts across channels. Brands love social media influencers because they can create trends and encourage their followers to buy the products they promote.

Therefore, there are typically two income streams for influencers: sponsorship from brands who pay the influencer to promote their products, or payments for clicks, whereby the individual is rewarded each time a click is generated onto their channel.

For tax purposes, the inflluencing of Kayla Itsines (l) and Tammy Hembrow is more than a hobby. (Instagram)

Not all social media influencers have enjoyed the success of the likes of Tammy Hembrow – who has amassed a fortune of $38 million – or fitness influencer Kayla Itsines.

Many people argue that their social media posting is merely a hobby. As such, any income they make from their posts is not taxable. But, whether the revenue earned by a social media influencer from their social media endeavours is income received from carrying on a business or income from a hobby is a question of fact and degree.

This distinction is important because income received from pursuing a business is considered taxable income.

Hobby or a business? Here’s how the ATO decides

It’s important to stay on top of your activities so you can identify whether your hobby has turned into a business, and when that crossover occurred.

Also by Mark Chapman:

The ATO uses a number of factors to help determine whether a social media influencer’s work is a hobby or a taxable business, including whether:

The activity has a significant commercial purpose or character

The taxpayer has more than just an intention to engage in business

The taxpayer has a purpose of profit as well as a prospect of profit from the activity

There is regularity and repetition of the activity

The activity is of the same kind, and carried on in a similar manner, to that of ordinary trade in that line of business

The activity is planned, organised, and carried on in a businesslike manner — this may be indicated by the size, scale, and permanency of the activity

The activity is better described as a hobby, a form of recreation, or sporting activity.

No one indicator is decisive in determining whether a business exists. Instead, they need to be considered in combination and as a whole.

When a social media influencer can be considered an artist

Based on the nature of their work, a social media influencer could be considered to be carrying on a business as a professional artist. This is a person who carries on the activities of a “professional arts business” as either:

An author of a literary, dramatic, musical, or artistic work

A performing artist

A production associate

The nature of arts activity means that arts businesses typically have different characteristics to those found in other businesses.

For example, people who engage in professional arts businesses are often motivated by creative purposes and the desire to influence public opinion. Art is not always produced with a pre-existing market in mind. Rather, an innovative artist may have to create a new market for their work.

For this reason, a large part of being in business as a professional artist may involve activities directed towards reputation-building and audience/market creation, which could be relevant when considering many online social media revenue streams.

The usual indicators described above still apply to these artistic businesses. But, with the high risk associated with arts businesses, profit may not be an appropriate factor and other indicators may need to be considered, such as:

When social media influencers need to pay tax

A typical point at which the ATO will draw the line between a business or hobby is when the social influencer is able to monetise their work.

At the outset, they might be able to argue that they were simply posting as a hobby but, when they begin to monetise their content (either through sponsorship payments from brands or direct payments from viewers), this argument is no longer sustainable.

The ATO would argue it is at this point that they should be treated as running a business, meaning that all their income from being an influencer becomes taxable because they had the business indicators of repetition, size, scale, and (possibly) business records.

At this point, our influencer would be required to include the money from their social media activities as assessable income in their tax return.

Once you are carrying on a business, deductions will be allowable for all expenses of a revenue nature incurred in the course of deriving that income, e.g. marketing, advertising, sponsorship, etc.

Also deductible (although typically over several years) are the costs of capital equipment necessary to run the business, including cameras, microphones, mobile phones, laptops, and desktop computers.

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