5 Important questions Social Media Influencers need to ask
Pretty much everyone is an influencer these days, but what sets the professionals apart from hobbyists? Do you know which category you fall in to? Do you need to be paying tax on any income you’ve received? What expenses can you claim if you’re running a business?
We’ve tried to answer some key questions below, which we believe social media influencers should be asking themselves.
One – Are you a Business or hobby?
Am I running a business or a hobby? Generally speaking, as soon as you start undertaking activities with the drive to make a profit, you are deemed as running a business. These can be seen as:
registering an ABN
Advertising your services
Repeating similar activities
Having a separate bank account
Costing for profit.
Consistency is key in this determination, if your activity is driven high for only a couple of months or only sporadically a few times a year then it might be viewed more as a hobby, it’s important to try to make that distinction early on so as to not get caught out.
If you’re running a business, there are particular registration and tax implications that need to be considered.
You’re in business if your activity, as a whole, is commercial (buying/selling) with an aim to make a profit. Everyone wants to make a profit! But there is a difference between taking holiday snaps for fun and selling a few prints to someone who thinks they’re cool, vs advertising and selling them with a 200% mark up or to meet the market price.
Consider these key questions to determine if you run a business:
Is the activity you undertake for commercial reasons i.e.. trading a good or service for money or something of value?
Is your main intention, purpose, or prospect to make a profit?
Do you regularly undertake your activity? Is this something you’d consider to be a part time or full-time job?
Is your activity planned, organised and carried out in a business-like manner?
Example of an activity that could be for profit: If you have a few posts on social media per week which are sponsored, or you receive a benefit for them. A benefit could be money, services, or goods.
Business.gov.au has a test for you to take for you to help with your determination of whether you are a business - https://start.business.gov.au.
Two – Am I earning Personal Services Income?
Personal Services Income (PSI) is income produced mainly from your personal skills or efforts as an individual (someone pays you for your labour, skills, or expertise). You need to earn 50% or more income from personal skills or efforts to be classified as PSI.
For example, let's say as a sole trader, you have a stationery line and do business coaching. Your income as a business coach is providing personal services to your clients, where as your stationery line is products you’re selling. If your Business coaching equals 30% of your income, and 70% is from product sales, then it would not be considered PSI.
The ATO has a test you can take to determine whether your business is PSI - https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=PSI&anchor=PSI#PSI/questions
Ok, so you’ve taken the test and your income is considered PSI, what now?
There are a variety of different rules that determine what tax deductions you are allowed to claim compared to that of a general small business. E.g. If you receive PSI, you may not be able to claim payments to your partner for their bookkeeping or admin support for your business.
Keeping accurate records of your income and expenses is critical. If you operate through a company or trust, PSI rules can still apply to each individual. Good records will make compliance with the ATO easier.
Three – Have you received Freebies for promoting brands?
Do you receive goods or services instead of money for your services, aka – non-cash benefits? These could be free accommodation, travel, products or services.
In Australia, as part of a proposed (as of 1st of July 2019) ‘Instagram Tax’, influencers must pay tax on income made through sponsorships and endorsements including non-cash benefits.
‘Freebies’ you may receive for promoting other brands may be considered taxable income. E.g. You receive the use of a car in exchange for you posting about it on social media, etc.
While there is still limited guidance on whether this tax has come into effect in some degree, it is prudent to follow current legislation and be mindful of what goods and services you’re receiving in Leu of cash payment.
While small gifts do not need to be declared, anything of substantial value will be expected to be included in your return.
Four – Can you claim any home office expenses?
Do you work from home? Have you claimed occupancy and/or running expenses? The ATO distinguishes between home office running expenses vs occupancy expenses.
Running expenses can include power, water, and gas.
Occupancy expenses can include rent and mortgage payments. If you have identified as receiving PSI, you generally won't be able to claim these expenses.
Thing is, if you own your own home and claim occupancy expenses you may need to pay capital gains tax when you sell your house.
Five – Are you keeping accurate and accessible records?
Do you have accurate record keeping processes and systems in place? Especially if you’re in business, one of the ATO requirements is that you maintain accurate records that are accessible.
Not only is keeping good records important for compliance (e.g. BAS and Tax Returns), good records help you make effective business and personal decisions.
While there may be a number of expenses you can claim, it's important not to throw too much confidence behind this assumption and be humble in your approach. If you believe something might be partly personal, there is nothing wrong with splitting it between a personal and business expense. Software such as Xero is cloud based, accessible form multiple devices, and is purpose built for record keeping, reporting, and compliance. It is very user friendly and it will allow you to split your business transactions from your personal ones with ease.
Information overload.... are you confused? Don’t worry, we have someone on standby ready to answer any questions you might have and help get you set up the right way!