For many creatives, performers and sportspersons, income doesn’t arrive in predictable amounts. One year might bring a publishing deal, performance tour or sponsorship, while the next brings little or no income. The Australian Taxation Office (ATO) recognises these fluctuations, which is why income averaging for special professionals exists.
This concessional tax treatment helps smooth out income over several years so you’re not penalised with a large tax bill in a strong year or left without fair recognition in a lean one.
What is income averaging?
ATO income averaging is a tax concession designed for professionals whose earnings vary widely from year to year. Instead of being taxed heavily in a single high-income year, your income is averaged across the previous four years. This spreads the tax impact, reducing volatility and often lowering your overall tax liability.
Any sudden spike in income – such as royalties, prizes or major contracts – is spread over several years for tax purposes. This ensures a fairer outcome and helps you budget with more confidence.
Who qualifies as a special professional?
The ATO limits eligibility to certain creative and sporting fields where irregular income is common. You may qualify if you work as:
- Author, inventor or artist – including writers, composers, photographers, sculptors or inventors
- Performing artist – such as an actor, musician, dancer or entertainer performing live or for broadcast
- Production associate – professionals applying artistic skills behind the scenes, such as producers, directors, editors or lighting designers
- Sportsperson – competitors in sports requiring physical skill or stamina, from athletics to motorsports
To be eligible, you must:
- Be an Australian resident for tax purposes, and
- Have earned more than $2,500 in taxable professional income in the current or a past income year. Once you’ve reached this threshold, eligibility continues automatically.
Common question: What if I work part-time as an artist or athlete?
Even part-time creatives or athletes may qualify, provided their income is derived from professional activities covered by the ATO’s definition.
How does income averaging work?
Income averaging divides your earnings into two parts:
- Other income – your average taxable professional income (ATPI) plus any non-professional income
- Above-average income – the amount by which your current year’s professional income exceeds your ATPI
Instead of taxing all the above-average income at once, the ATO adds one-fifth of it to your other income, calculates the extra tax, and multiplies the result by five. This spreads the tax over five years, smoothing large fluctuations.
The calculation is automatic within your tax return – there’s no separate form or application. However, understanding how it works helps you plan for years when major earnings are expected.
What types of income are included?
Income averaging applies only to certain kinds of professional income, such as:
- Royalties, copyright fees and commissions from creative works
- Licensing or assignment of patents
- Fees for artistic, performance or sporting services
- Prizes, awards, endorsements and sponsorships tied to your professional activities
Income that doesn’t qualify includes:
- Salaries or wages from unrelated employment
- Teaching or coaching income outside professional performances
- Termination payments, superannuation lump sums or unused leave
- Capital gains
Understanding which income qualifies is crucial to avoid over- or under-claiming.
Why income averaging matters
Without averaging, one strong earning year could push you into a higher tax bracket, creating an outsized tax bill. Income averaging helps to:
- Reduce tax payable in strong years by taxing large one-off payments more fairly
- Stabilise cash flow across good and lean years
- Provide greater financial predictability for creatives and athletes whose incomes naturally vary
Search trend insight: Many professionals ask whether income averaging “saves tax.” The answer is that it doesn’t guarantee a lower lifetime tax bill – it evens out the timing so you’re taxed fairly across years, avoiding punitive spikes.
Common pitfalls
Even though income averaging is automatically calculated, there are still traps to avoid:
- Misclassifying income – assuming all income qualifies when much of it may not
- Incorrect calculations – leaving out relevant years or including excluded income
- Poor record-keeping – lacking proof of eligibility or income sources
- Not updating advisors – changes in legislation or ATO interpretation can alter eligibility
These issues can lead to ATO queries or missed concessions, so it’s important to maintain accurate records and review your position annually.
Why seek professional advice?
ATO income averaging is complex, and applying the rules correctly ensures you receive the full benefit while remaining compliant. A qualified tax advisor can:
- Confirm eligibility and apply the calculation correctly
- Maximise related concessions and deductions
- Help manage cash flow planning for fluctuating income
- Protect you from compliance risks or overpayment
Professionals in the creative and sporting industries often have mixed income sources, so understanding how averaging interacts with other deductions, business expenses and super contributions is vital.
Partner with LDB for advice on income averaging
If you’re an author, performing artist, producer or athlete with irregular income, income averaging could significantly improve your tax outcomes and provide greater financial stability.
At LDB, our experienced accountants and tax advisors in Blackburn, Melbourne, work closely with creative professionals and sportspersons to ensure your tax strategy aligns with your career and lifestyle.
Call us today on (03) 9875 2900 or get in touch online to discuss how income averaging could benefit you.
Or you can follow LDB on LinkedIn for updates on tax, superannuation and financial advice for creative and professional industries.
