Sunday, November 29, 2009
This Report contains an overview of the current Australian tax treatment of the arts industry. To assist with this analysis, the art sector is divided into three broad categories: artists, art bodies and contributors. The Report highlights a number of mechanisms in the Australian tax system which relate to the arts - some which assist and some which do not.
Briefly, the major observations are:
• Employee-artists are subject to similar rules as those that apply to other
• For business-artists:
a) If trading as a sole trader (contractor), the business-artist may be deemed an ‘employee’ for Superannuation Guarantee purposes. This assists business-artists to accumulate superannuation savings for their retirement.
b) To smooth out income fluctuations, there is the ability to average income in a year when there is above-average professional income.
c) They could be regarded as a ‘small business’, and thereby access a number of tax concessions, such as small business capital gains tax (CGT) concessions.
d) Rules can quarantine artistic tax losses, so the losses cannot offset other income, such as part-time wages. There is a carve-out for some artists if their non-artist income is less than $40,000 per annum.
e) Rules can attribute personal service artistic income directly to artists even though a business structure (such as ‘company’) has been interposed between artists and their clients.
• For Art Bodies:
a) The constitution of the Art Body may enable it to be exempt from income tax.
b) The Art Body may be eligible to register as a Deductible Gift Recipient (DGR). Status, as a DGR means that donations to the Art Body may be tax deductible for taxpayers.
c) If the Art Body is not exempt from income tax, then its tax treatment will depend on the business form utilised.
• For Individuals (alive) the tax treatment of their contributions to the arts vary:
a) Donations of cash or property to non-DGRs would normally not be deductible for taxpayers. However, this can be altered if the individual donates through an intermediary DGR (such as the Australian Business Arts Foundation), which then can forward the contribution to a non-DGR. Donations through an intermediary DGR will be tax deductible for the taxpayer.
b) The ‘net inflated amount’ may be tax deductible when there is a minor benefit received in return for donations to DGRs, such as charity dinners and charity auctions.
c) Deductions for cultural goods are available for donations to certain cultural institutions.
d) Deductions for donations to DGRs of other non-cultural goods and land can be available. However, the taxpayer could have a deemed capital gain for the donation, which may negate the benefit of the tax deduction for the donation.
e) Volunteering of time and services (including expenses incurred in doing volunteer work) is unlikely to be tax deductible for volunteers.
f) The purchase of art work is likely to be subject to restrictive CGT rules that either limit the cost base or quarantine subsequent capital losses on disposal of the art.
• For Individuals who make testamentary donations, these will normally not be tax deductible unless the donation is of cultural goods (in very limited circumstances).
• For enterprises purchasing or supporting the arts, they may be able to claim a tax deduction for advertising received in connection to the support. However, such a deduction could be denied or reduced if the purchase includes ‘entertainment’.
• Individuals can set up their own DGRs by creating a Prescribed Private Fund (PPF), a non-profit trust which itself contributes to other DGRs which may include Art Bodies.
• New film tax offset incentives have been introduced which replace the prior deduction system.
After providing an overview of the Australian tax system, this Report analyses the tax treatment of Artists, Art Bodies and Contributors. The Report also canvasses the new tax offset concessions for the film industry, and then outlines some concluding observations about potential reforms that will be further developed in Report #4.
Download the paper at the link.