What influencers can claim on tax
If you earn an income from being a social media influencer, you may not have given much thought to the tax implications - but you should.
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.
How do influencers make their money?
There are two typical income streams for influencers - sponsorship from brands who pay the influencer to promote their products and/or payments for clicks, whereby the individual is rewarded each time a click is generated onto their channel.
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 received 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.
When does a hobby become a business?
With the low barrier to entry for operating a business and 24/7 communications in the virtual world compared with the "old bricks and mortar" economy, a perceived hobby can factually convert into a business instantaneously.
Therefore, it is important to monitor your activities so that you can identify whether a crossover has been reached from hobby to business and when that crossover actually occurred.
A number of factors are typically taken into account by the ATO to help determine whether a business is being carried on.
These indicators include:
- whether the activity has a significant commercial purpose or character
- whether the taxpayer has more than just an intention to engage in business
- whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity
- whether there is regularity and repetition of the activity
- whether the activity is of the same kind, and carried on in a similar manner, to that of ordinary trade in that line of business
- whether 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, and
- whether 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. The indicators must be considered in combination and as a whole.
Although the fundamentals for determining when business activities are being carried on are the same for traditional businesses and online businesses, there are further characteristics to consider with social media influencers.
Is an influencer considered an artist?
Based on the nature of their work, the 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, or
- 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. This would appear to be relevant when considering many online social media revenue streams.
The usual indicators described above still apply to these artistic businesses. However, 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:
- repetition
- activities of the same kind, and
- size and scale.
What are common tax deductions for social media influencers?
A typical point at which the ATO will draw the line between a business or hobby arrives 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 as they had the business indicators of repetition, size, scale, and (possibly) business records.
At this juncture, 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, eg 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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