If you’re an online content creator, you’ve probably heard of the crowdfunding platform Patreon. Perhaps you’ve even got a Patreon account, or are thinking of setting up one.
Patreon is a great way for creatives to boost their income while creating the art they love. Artists can receive donations from patrons, and even offer tiered subscription packages to fans of their work.
But even though this arrangement may feel personal and non-commercial in nature, any money you receive from your Patreon fans may still be subject to income tax in Australia. What’s more, if the ATO finds that you’re not paying your fair share of tax, you could face some significant financial penalties.
If you’re not sure how to submit your Patreon tax return, working with a professional tax agent can help you get clear on your obligations, while also minimising the amount of tax you’re required to pay at tax time.
What is Patreon?
Patreon is a platform that enables fans to support artists for their work. It was inspired by the monarchs, religious institutions, and wealthy families that have provided financial support for artists since Renaissance times.
Traditionally, patronage was only for the wealthy – people who could afford to support artists or curate collections of multi-million dollar artworks for the public to view and enjoy. But now through Patreon, contemporary artists and social media influencers can connect with a wide base of fans who contribute whatever they can to help artists to produce their work.
In exchange, artists can give their patrons early access to new work, exclusive uploads or behind-the-scenes content, and other VIP peks.
Do I have to pay tax on Patreon income?
As an artist and creator on Patreon, you offer a service to your fans. Even if you’re not sending them physical goods, they’re still receiving some form of value in exchange for their patronage. Therefore, Patreon subscriptions and donations count as income, just the same as actual sales of your work.
So yes, you are obligated to pay tax on your Patreon income. Unless you fall under the tax free threshold of $18,200 in a financial year, your earnings will be taxed at your marginal tax rate.
You see, Patreon falls into the category of crowdfunding by the ATO. Typically crowdfunding income might not be assessed as taxable income depending on how the raised funds were used.
If funds were donated entirely to the project or venture that they were crowdfunded for, there’s a bigger chance that money wouldn’t be considered taxable income. For example, if you were raising money for a community event or worthwhile cause, and your entire project earnings were spent on that cause, that money is not income and therefore not subject to taxation.
But Patreon earnings are a bit different, in that the earnings go to YOU, the creator. Even if you are spending all of your income on materials used to create your art, such as canvas, graphic design software, or guitar strings, your purpose for your Patreon account isn’t charitable – it’s to earn money.
So the ATO is likely to view your income as gained from a business-like endeavour, and tax you according to your marginal tax rate.
About charitable donations taxable
Some Patreon payments are referred to as donations. This is a bit misleading and might seem to imply that monetary donations or pledges you receive are not subject to tax.
But in Australia, the only entities that can legally accept donations tax-free are registered charities. Basically, it doesn’t matter where the money comes from or what it’s called – if you’re not a registered charity, it’s subject to tax.
What if I’m using Patreon as just a hobby?
The line between a business and a hobby can be a bit confusing. But it’s important to make sure you’re reporting to the ATO from the right side of that line!
To cut it down to bare basics, if you’re starting your Patreon account with any intention of generating a profit, you’re running a business.
If you’re not expecting a profit but are carrying on business-like activities with regularity – such as tracking your income, planning your launches, and marketing your page – then you’re running a business.
Basically, it’s safe to say that by starting a Patreon for any other reason than to raise funds for a charitable cause, the ATO considers you to be running a business endeavour. And they’ll want to hear from you come tax time.
How to lower the amount of tax you have to pay
If the thought of giving up some of your hard-earned income at tax time leaves you feeling a bit deflated, there is a silver lining.
You can offset any business-related expenses against your taxable earnings. This reduces the amount of tax you have to pay.
However, it’s important to make sure that the expenses you claim are solely used for business-purposes only. Alternatively, you can claim a percentage of an item that you use partially for your Patreon account, and partially for personal use.
Things you might claim as a business expense include –
- Pencils, paints, canvas and other art supplies
- Digital software such as Photoshop, Canva, or Adobe Suite
- Equipment such as microphones, cameras, and computers
- Training courses and paid workshops
- Studio hire
Just make sure you keep your receipts, and track your expenses in a spreadsheet or ideally use accounting software. You’ll be thanking yourself for being organised when it’s time to do your tax return!
Where to get help with your Patreon taxes
If you’re unsure of how to set your business up, what you can claim, and how to do your tax return, it’s a good idea to work with a tax agent.
At National Accounts, we’re familiar with the Patreon platform, and can help you stay compliant with the ATO at tax time.
Simply get in touch using the link below to see how we can help take the stress out of tax time.