Special professionals such as authors of literary, dramatic, musical or artistic work, inventors, performing artists, production associates or sportspersons typically find their professional income varies greatly from year to year. An author for example, may have minimal income for several years while writing a book, and have a large income in the year the books published.
The averaging provisions ensure that if the special professional receives a large special professional income in one year, it is not taxed at that years marginal tax rates (which could be 47%), but at the special professionals marginal tax rates over the preceding years (which are most likely lower). This ensures that the tax system doesn’t unfairly tax the special professionals due to their irregular income by taxing them at higher average marginal tax rates than the average taxpayer.
Taxpayers are eligible for the special professional income averaging tax concession if:
• They are an individual who was an Australian resident at any time during the income year (i.e. not applicable to companies).
• They are a special professional (i.e. an author of a literary, dramatic, musical or artistic work, an inventor, a performing artist, a production associate or a sportsperson).
• They satisfy the first year requirement of $2,500 special professional income in either the current income year or an earlier income.