I receive a lot of incorrect invoices, and come across a lot of bands with no idea how the hell to finically manage their band correctly, which is fair enough because tax is confusing as hell, and musicians were not put on this earth to crunch numbers.
Now I can't say that this is advice, because I'm not a qualified accountant. So this is my personal opinion of how you might like to set up your band financially.
When it comes to tax time you will need an accountant. I don't recommend lodging a tax return under an ABN on your own.
Now I can't say that this is advice, because I'm not a qualified accountant. So this is my personal opinion of how you might like to set up your band financially.
When it comes to tax time you will need an accountant. I don't recommend lodging a tax return under an ABN on your own.
1. Get Tax File Numbers (TFN), full name and date of birth from all band members
You will need these details for step 2, so best to get them before you hit a huge hurdle whilst applying for your ABN.
2. Register for an Australian Business Number (ABN)
You can register for an ABN on the ABR (Australian Business Register) website.
The process will take you around 45minutes and won't cost you anything.
Make sure you've decided which band member will be the primary contact, and have their contact details and address handy.
If you are a soloist, you can apply for an ABN as a Sole Trader, but if you are a band, you will need to apply under a partnership. Remember, if any band members leave or join, you will need to apply for a new partnership under a new ABN. Make sure you select Apply for a TFN if you are applying for a partnership as your partnership requires an ABN and TFN.
Every member of the band should be a partner under the ABN so 4 members means 4 partners.
Every member of the band should be a partner under the ABN so 4 members means 4 partners.
You should select your start date for your ABN to be the same date as your application, and your ABN will be generated right away. Be sure to write it down, but if you forget, they will send you an official looking document in the post.
Why should you apply for an ABN under a partnership and not a sole trader as a band?
Applying for an ABN under a partnership as a band entitles you to more deductions, and less of a chance that you will have to pay tax on the bands earnings. For example, if the whole band goes on tour, this is a deduction on the partnership's earnings. And we all hope we will make money from music, but chances are you'll never make enough to ever pay any tax on your partnership, but we'll get to that later when I go over deductions.
If you are registered as a sole trader and need to pay other band members, they will need to invoice you from their own ABN to avoid you having to pay their tax.
Should you register for GST?
Only register for GST if you think you may be earning $75K a year or more under the partnership. In most cases you won't, and by not being registered for GST, your BAS (Business Activity Statement) won't be so much of a hassle.
If you do need to apply for GST later down the track, you can.
3. Register your band's name as a Business Name
Registering a business name costs around $90 every 3 years, depending on which state you're in. But don't worry because it's a deduction. Hooray!
You can register your business name by downloading the form from the WA Department of Commerce website (if you're in Western Australia. Each state has it's own Department of Commerce). Or you can just follow this link to download the PDF.
4. Open a band bank account
This is a pretty simple one, if you open a bank account under the band name, this makes taxing life, and keeping track of earnings and savings much easier. You can open the account under the Registered Business name. Make sure you provide your ABN/TFN so you don't get taxed 47% on any interest you earn.
Just remember that when you open this account, all members of the partnership must be present. I'd go for a business account with a higher interest rate. The trade off of this is you generally have a limited number of withdrawals per month. But hopefully your only withdrawals will be big lump sums for touring and recording, so you shouldn't be withdrawing money from there all that often anyway, hence the limited transactions trade off shouldn't really affect you at all.
Just remember that when you open this account, all members of the partnership must be present. I'd go for a business account with a higher interest rate. The trade off of this is you generally have a limited number of withdrawals per month. But hopefully your only withdrawals will be big lump sums for touring and recording, so you shouldn't be withdrawing money from there all that often anyway, hence the limited transactions trade off shouldn't really affect you at all.
5. Invoicing correctly
So once you have been through the past four steps, this one is as easy as filling out any other form.
Below is a picture of my invoice template, feel free to copy it and use it yourself.
But remember all of the fields are there because they must be filled out. So make sure you don't leave any blanks.
If you would like to make your own invoice, be sure to include all of the details you can see in this invoice.
If you fill out an invoice incorrectly, many people will not tell you and just won't pay you.
If you have failed to execute steps 1-4, well that's okay, you can still get paid for gigs, but you still need to supply an invoice, the only difference is you'll need to supply a "hobby form", and attach it to your invoice. You can get one by following the link below:
Statement By Supplier
6. Receipts & Deductions
Don't worry to much about tax credits, unless you registered for them, which you probably didn't because in most cases musicians don't need to. If you're unsure, speak to your accountant.
Knowing what is and isn't deductible as a musician is going to be extremely valuable to you as your career progresses, to really wrap your head around it completely you will need to talk to an accountant but some examples of your deductions are:
There are many more deductions, you'll need to speak to an accountant to get a complete idea of how much you are eligible for. The most important thing in this instance however is to make sure you keep ALL of your receipts! If you lose a receipt, you lose your deduction.
7. Spreadsheets
Keeping a spreadsheet of all your income will help make life much easier for your accountant and save you money during tax time.
Your costing spreadsheet needs the following categories:
If you fill out an invoice incorrectly, many people will not tell you and just won't pay you.
If you have failed to execute steps 1-4, well that's okay, you can still get paid for gigs, but you still need to supply an invoice, the only difference is you'll need to supply a "hobby form", and attach it to your invoice. You can get one by following the link below:
Statement By Supplier
6. Receipts & Deductions
A tax deduction is a reduction of a taxpayer’s total income that decreases the amount of money used in calculating the tax due. Essentially, a tax deduction is a break granted by the government. It reduces taxes by a percentage that is dependent upon the income bracket of the taxpayer.
A tax deduction is different from a tax credit. For example, if an individual takes advantage of a $1,000 tax deduction on $50,000 worth of taxable income, his or her taxable income is reduced to $49,000. The amount of money saved in this scenario would be a small portion of the $1,000deduction.
On the other hand, a tax credit of the same amount would reduce the amount of taxes owed by $1,000. The actual savings realized would be the entire $1,000 of the tax credit. Tax credits reduce taxes on a dollar-for-dollar basis, while tax deductions do not.
Don't worry to much about tax credits, unless you registered for them, which you probably didn't because in most cases musicians don't need to. If you're unsure, speak to your accountant.
Knowing what is and isn't deductible as a musician is going to be extremely valuable to you as your career progresses, to really wrap your head around it completely you will need to talk to an accountant but some examples of your deductions are:
- Tour costs - i.e. flights, accommodation, car hire, taxi receipts, even food. Remember alcohol is NOT a tax deduction :(
- Instruments - These are tax deductible under your ABN, but are depreciable assets and are deducted over a few years. If you want to know more you can read this super exciting 30 page document which will tell you all about it: Accounting Standards Board - Depreciation. When you come to do your tax return, your accountant will know all about this stuff, so don't sweat.
- Petrol to and from gigs, and to rehearsals is a tax deduction if you can be bothered keeping a petrol log. You can buy little petrol log books from office works, and just keep it in your glove box.
- Any maintenance, so strings, skins, sticks, services....what ever you use to keep your instrument going.
- Recording costs - yep. Everything from the studio time, right up to printing, and even the food you ate while you were there are all deductible.
- Publicity and promotion - so any posters, street press ads, radio ads, these are all deductible.
There are many more deductions, you'll need to speak to an accountant to get a complete idea of how much you are eligible for. The most important thing in this instance however is to make sure you keep ALL of your receipts! If you lose a receipt, you lose your deduction.
7. Spreadsheets
Keeping a spreadsheet of all your income will help make life much easier for your accountant and save you money during tax time.
Your costing spreadsheet needs the following categories:
- Date
- Description
- Reference/Invoice/Receipt number
- Amount
- Code (what kind of expense is it)
- usage (personal or business)
- account payment method (cash or card, which account did it come from)
Finally, make sure you find an accountant to fill you in on anything you're unsure of. It will cost you some money in the short term, but accountant fees are tax deductible, and will save you money and stress in the long term.
If you find any of this needs further explaining, or you might be unsure of any of the above provided suggestions, you can research some more for yourself by going to the ATO website.
ATO - Small Business Support Overview
THAT WAS A LONG POST!
I hope it helps some people out there!
xx
THAT WAS A LONG POST!
I hope it helps some people out there!
xx
Cheers! thanks for the info
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