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Live streaming and the tax consequences

Live streaming and the tax consequences

Thomas Cusmano

Live streaming is an increasingly popular activity and these days there are big bucks involved. But what are the tax consequences?
 
A person who is broadcasting their online activity in real time is ‘live streaming’. This form of entertainment has developed into a massive industry for video gamers and other creatives, with recent COVID-19 ‘stay at home’ restrictions leading to a surge in viewership and the number of people streaming online.

The rapid growth in live streaming services has led to some of the largest companies in the world investing or developing their own streaming platforms: Examples include Google (YouTube Gaming), Amazon (Twitch), Facebook Gaming, and until just recently Microsoft (Mixer).

Some of the top individual streamers earn over $400,000 per month from their various revenue streams through viewer donations and signing exclusivity deals with companies’ worth tens of millions of dollars. This is the extreme side of the scale, but given how easy it is, anyone is able to broadcast their online activity. This has resulted in a large number of streamers ‘dabbling’ in broadcasting for fun and earning a bit of extra money in the process.

Streamers earning a regular income may start to incur additional costs to broadcast in a more professional manner to attract additional viewers – this is where it gets interesting. At what point does streaming for fun (a hobby), turn into streaming to make money?

Simply put, income and expenditure relating to activities such as live streaming that go beyond a hobby may be required to be included in their income tax return.

This is a general principle of tax law that can be applied to any activity. The Australian Taxation Office (ATO) has produced guidance to assist people in determining when something becomes more than a hobby. Particularly of note:
 
1.  You've made a decision to start a business and have done something about it.
  • Registered for an ABN or business name?
  • Developed a brand / logo for you stream?
2.  You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term. 
  • What is the purpose – simply for fun?
  • Is there another activity (i.e. another job) that supports the streaming, or is streaming the main revenue generating activity?
  • Is the ultimate goal to stream full time?
 3.  You repeat similar types of activities. 
  • Stream regularly and for long periods of time?
  • Make videos for YouTube and other platforms to promote the brand/stream?
  • Promote on social media to increase viewership of the stream?
  • Regular schedule with set days / hours?
4.  The size or scale of your activity is consistent with other businesses in your industry.
  • How much has been invested in the set-up? (i.e. Green screen, professional videos, professional lighting, brand design.)
​5.  Your activity is planned, organised and carried out in a businesslike manner.
  • Are there sponsorship deals?
  • Is there a partnership with a streaming service?
  • Is the stream advertised?
  • Release other creative content to assist in building the streaming ‘brand’ or name?
  • Separate bank account for all streaming income and expenditure? Do you maintain any accounting software?
  • Sough or paid for professional or expert advice, or joined any professional associates or bodies?
 
Whether or not someone is carrying on a business is a question of fact and as we always say in tax, the answer is: It depends! Just because a streamer makes a bit of money every now and then doesn’t mean they are running a business (and have to pay tax on that income). Everyone’s situation is different. There is a need to assess how each of the factors apply to the specific situation.

Think of it as a see-saw. At some point the factors are going to tip the balance from a hobby to a business. Some factors may have more weight than others however, there is no one factor alone which is going to tip that balance.

If activities do not amount to a business yet, it is always prudent to keep reviewing these factors as a streamer gains more followers and viewer donations.

If activities amount to a business, there will be a need to start keeping records of all forms of income.

What kind of income might you need to declare?
  • Donations from viewers
  • Advertising revenue
  • Sponsorship revenue
  • Subscription revenue
Tax is paid on income less expenses, so keeping a list of expenses in earning that income means you pay less tax.

Deductions could include (but would not be limited to):
  • Hardware (including computer, monitor/TV’s, Peripherals, webcams, recording and lighting equipment)
  • Internet costs
  • Software subscriptions
  • Office furniture and equipment
  • Portion of power, heating, lighting costs
  • Portion of your rent
  • Advertising
If expenses are more than income for a particular year, then the activity is deemed to have made a loss. The next consideration would be whether there is an ability to offset this loss against income from other sources (i.e. another job) for that year.

The ability to offset ‘non-commercial losses’ against other income requires meeting certain criteria. If the criteria is not met, losses will be quarantined and carried forward to offset against future income of the streaming business, or can be offset against other income in a subsequent year in which the criteria are met.
The tax system in Australia is based on self-assessment, meaning the onus is on the taxpayer to comply with tax legislation. As technology rapidly improves year-on-year, so do the ATO data-matching capabilities, and as a result, unreported income is becoming a large focus area for the ATO given the wealth of information available to them.

The bottom line is a need to make sure that when activities amount to a business, that the income is being reported in the correct manner. The consequence of failing to do so may result in the requirement to pay tax on all earnings (including the possibility of interest and penalties) if the ATO determine a business has been operating for some time.

If you are live streaming and think the above may apply to your situation or have any other tax related questions, feel free to get in touch with Thomas Cusmano on 
cuzma123 (Twitch), cuzma#4095 (Discord), Twitter, or through your local Moore Australia advisor to discuss your situation.