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Edited version of your written advice
Authorisation Number: 1012974029975
Date of advice: 22 February 2016
Ruling
Subject: Special professional income
Question
Is the income you received as a professional considered to be 'special professional' income for the purposes of concessional tax treatment under Division 405 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You are an Australian resident for tax purposes.
In the 20VV-WW financial year you began working as a professional, contracting to a company that was involved in the development of on-line computer programmes. Your work involved creating, modelling and experimenting with design and producing conceptual work through your own artistic imagination.
During the 20VV-WW financial year the taxable income from your work as a professional was more than $2,500.
You were an Australian resident for income tax purposes in the 20UU-VV financial year.
Relevant legislative provisions
Income Tax Assessment Act 1936 - Division 16A
Income Tax Assessment Act 1997 - Section 405-15
Income Tax Assessment Act 1997 - Section 405-20
Income Tax Assessment Act 1997 - Section 405-25
Income Tax Assessment Act 1997 - Subsection 405-25(1)
Income Tax Assessment Act 1997 - Paragraph 405-25(4)(b)
Income Tax Assessment Act 1997 - Paragraph 405-25(5)(a)
Reasons for decision
Are you a special professional?
A professional is considered an author of artistic work and is therefore a special professional. As such you can include as assessable special professional income any assessable income that you derive in relation to your artistic activities.
Income averaging applied to your circumstances
As you earned more than $2,500 in taxable professional income during the 20VV-WW financial year, and you were an Australian resident in the preceding financial year, this year is considered your first year for special professional averaging.
Therefore the concessional tax treatment can be applied to the special professional income you earn for the 20VV-WW year.
Detailed reasoning
Division 405 of the ITAA 1997 applies special rates of tax on the above-average professional income of special professionals. It reduces the effect that fluctuations in special professional income would otherwise have on the income tax liability of these persons.
Under this division you are only subject to concessional tax treatment if:
• you are an individual
• you are an Australian resident at any time during the income year
• you are a special professional, and
• your taxable professional income is more than $2,500 in the current or earlier income year.
Subsection 405-25(1) of the ITAA 1997 states that you are a special professional if you are the author of a literary, dramatic, musical or artistic work.
Are you an author of a literary, dramatic, musical or artistic work
Definition of author:
There is no definition for an 'author' in the ITAA 1997 or Income Tax Assessment Act 1936 (ITAA 1936), but the explanatory memorandum which accompanied the introduction of the former Division 16A of the ITAA 1936 (now Division 405 of the ITAA 1997) states that it is linked to the use of those expressions in the Copyright Act 1968.
Although not specifically defined in the Copyright Act 1968, an 'author' is taken to mean the person who first brings items, such as a text or image, into existence.
Artistic work:
Section 10 of the Copyright Act 1968 contains the definitions of the terms artistic work.
Artistic work means:
(a) a painting, sculpture, drawing, engraving or photograph, whether the work is of artistic quality or not;
(b) a building or a model of a building, whether the building or model is of artistic quality or not; or
(c) a work of artistic craftsmanship to which neither of the two last preceding paragraphs applies;
but does not include a circuit layout within the meaning of the Circuit Layouts Act 1989.
In consideration of the above definitions, as a contract professional you are an author of artistic work.
Application of income averaging to your circumstances
As you are an author of artistic work, you are considered a special professional within the meaning given by subsection 405-25(1) of the ITAA 1997.
Section 405-20 of the ITAA 1997 states that you include as assessable special professional income any assessable income that you derive as a reward for providing services relating to your activities as a special professional.
Therefore you include as assessable special professional income any assessable income that you derive in relation to your freelance activities.
Averaging start year
The 20VV-WW financial year was the first year that you earned more than $2,500 in taxable professional income from your contracting activities. Further, you were an Australian resident in the preceding financial year. As such, the 20VV-WW financial year is considered the first year for special professional averaging.
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