The ATO's "Secret Club": A Guide to Income Averaging for Artists, Authors & Athletes

Income Averaging for Special Professionals

For most people, a steady paycheck is the norm. But what if you're an author who works for three years with no income and then receives a huge one-off publishing advance? Or a professional athlete who has a quiet season and then wins massive prize money in a single tournament?

If the ATO taxed you on that one "lumpy" year of income like a normal salaried employee, the high marginal tax rates would be crushing and unfair.

That's why the ATO has a special concession for this exact situation. Welcome to one of the most niche corners of Australian tax law: Income Averaging for Special Professionals.

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Are You in the "Secret Club"?

The ATO has a very specific list of who qualifies as a "special professional." You are eligible if you are an Australian resident and your income is derived from being a:

• Author or Inventor

• Performing Artist (actor, dancer, musician, singer)

• Production Associate (artistic director, choreographer, camera operator, etc.)

• Sportsperson (a professional athlete, coach, or trainer)

  
  

The Gateway: How to Qualify

You can't just opt into this system. You automatically qualify in your "first year," which is the first financial year your taxable professional income jumps over the $2,500 threshold.

Once you have this "breakout year," you're in the averaging system, and it applies to all following years, whether your income is high or low.

How Income Averaging Works: An Example

The system works by splitting your income into two parts: your Average Income and your Abnormal Income.

Let's use an example. Meet Jane, an author.

• For years: Jane wrote her novel, earning less than $2,500 a year.

• 2025 (Year 1): Her book is sold! She gets a $101,000 advance. This is her "first year" as her income is over $2,500.

  • Average Income: $101,000

  • Abnormal Income: $0 (Her income is the average, so there's no benefit yet).

• 2026 (Year 2): A quiet year. She only earns $20,000.

  • Average Income (based on 2025): $101,000

  • Abnormal Income: $0 (Her income is less than her average). Her tax is just calculated normally on $20,000.

• 2027 (Year 3): Her second book is a hit. She gets a $150,000 advance.

  • Average Income (average of 2025 & 2026): ($101,000 + $20,000) / 2 = $60,500

  • Abnormal Income (the amount above her average): $150,000 - $60,500 = $89,500

    
    

Here is the magic: instead of taxing that full $89,500 at her highest marginal rate (which would be very high), the ATO applies a special calculation.

In simple terms, they calculate the tax on her "average" part ($60,500) normally. Then, they tax the "abnormal" part ($89,500) at a much lower, blended rate. This "five-slice" calculation provides a significant tax saving, ensuring her big year isn't unfairly penalised.

A Critical Distinction: What Income Qualifies?

This is a major trap, especially for athletes. The averaging calculation only applies to taxable professional income—income from the direct exercise of your skill.

Let's use Chris, an athlete, as an example. In 2027, he has a huge year:

• Prize Money: $500,000 (This is professional income).

• Sponsorship Deal: $100,000 (This is other income).

  
  

The ATO's averaging calculation is only performed on the $500,000 prize money. The $100,000 sponsorship deal is just treated as normal income and taxed separately. This distinction is critical and can save (or cost) you thousands if done incorrectly.

Handling the Complexities

• What if I have a part-time job? If Jane the Author also works at a bookstore, that $30,000 salary is kept completely separate. It's simply added to her final income after the averaging calculation is done on her author income.

• What if I make a professional loss? If Chris the Athlete's travel and coaching expenses are $50,000 but he only wins $30,000, he has a $20,000 professional loss. For averaging purposes, his income for that year is treated as nil (it doesn't drag his average down). He can also use that $20,000 loss to offset his other income (like his sponsorship money).

  
  

Leaving the "Secret Club"

The system is designed for a career, but you can get out in two ways:

1. 10-Year Election: After you've been in the averaging system for at least 10 years, you can make a written, permanent election to the ATO to withdraw.

2. Permanent Retirement: When you permanently retire from your special professional career, the averaging rules stop applying from the following financial year, and a final calculation is done to square everything up.

Get Expert Advice on Your Niche Income

Income averaging for special professionals is one of the most complex areas of personal tax. It is not something you should ever try to figure out on your own.

This is a perfect example of where tailored, expert advice is essential. At Aevum Accounting, our job is to understand these niche areas of the law to ensure you're not only compliant but are getting the full benefit of every concession you're entitled to.

Don't let a "lumpy" income year lead to a massive, unfair tax bill.

Book a consultation with our team today(https://www.aevumaccounting.com.au/bookings) to discuss your unique situation.

Disclaimer: The information and strategies shared in this article are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalized advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional at Aevum Accounting.