Income Averaging for Special Professionals

What is Special Professional Income?

Special professional income is income earned from;

  • Authoring a literary work.
  • Composing music.
  • As a performing artist
  • Being a production associate (providing artistic support e.g. as an art director, producer, choreographer, set designer).
  • As a sports person.
  • As an inventor – examples include application developers and computer game designer.

For more details, see here

In many cases, it does not matter whether income is earned as an employee or from business.

How does it work?

Special professionals often have fluctuating levels of income – year by year.  If one person earns $250,000 in a single year (say from game or book royalties) they would ordinarily pay more tax than someone else who earned $50,000 a year over a five year period. Roughly twice as much.

Special professionals often have a boom and bust cycle of income. For example – an artist may only sell works at a major exhibition every few years.  A musician may earn most of their income on the release of a new album and so forth.

Income averaging is designed to make the tax system fairer for special professionals by examining the income earned in the current year and comparing it to income earned in previous years.  If more special professional income has been earned than the average of the last 4 years, a tax offset may be available.

Special professional income is declared in the tax personal tax return. It isn’t separate to the personal return.

What is the potential benefit?

The key benefit income averaging can give is a reduction in tax.  Averaging can be especially beneficial special professionals beginning of their career, because special professional income is averaged over five years.

How can Newtown Tax help?

Working out whether you earning special professional income and how much of your income is special professional may need careful analysis of what your job involves.  This is done in consultation.  If you are earning special professional income, we can include it in the preparation of your tax return to ensure you get the benefit you are entitled to.