Chartered Accountants

Creative Clients

We have assisted artists, writers, photographers and film-makers harness taxation concessions that acknowledge the unique and special contribution their original works bring to the community.

Creative people often have difficulty in comprehending taxation legislation that only seems to reward a profit motive; requiring a nexus between incurring an expense and deriving assessable income. Even creating and directing a documentary for a television studio will involve creative work whether it be filming, directing or editing and the budgetary constraints imposed by the producer are tolerated but seldom welcomed.

In the event that a creative person succeeds in these competitive industries, they may be eligible for concessions that may reduce income tax exposure.

Two key ways income tax exposure may be reduced for eligible taxpayers are :

  1. Averaging "special professional income"
    Averaging concessions may be available for artists, writers and sportspersons to soften the tax otherwise payable in peak earning periods, subject to eligibility requirements relating to the nature of eligible income and in the first year; its quantum.
  2. Exclusion from operation of non-commercial loss legislation so that a loss from eligible activities is not quarantined and may be applied to reduce taxable income overall.
    In order to take advantage of these and other (for example small business) concessions, the taxpayer needs to be acknowledged as carrying on a "professional arts business."

Carrying on a business as an Artist

Prior to introduction of the non-commercial loss legislation, the Australian Taxation Office scrutinized the activities of many artists to determine whether they constituted the carrying on of a business. One of the key criteria was whether profit was derived or capable of derivation by the individual concerned.

Non-commercial loss legislation was introduced from the 2001 tax year, basically denying offset of deductions for losses unless at least one condition is satisfied, one of which is a minimum turnover, another is profit over the past 3 of 5 years.

These tests do not apply to an activity that is considered to be a professional arts business, provided the taxpayer's other non-art related assessable income is less than $40,000.

The ATO considers a "professional arts business" to be a business carried on by a taxpayer as an author of an artistic work. This may be the artist, sculptor or photographer who created and sells only their artwork.

Note that an art gallery or a manager or agent for an artist will not be treated as a professional artist for the purpose of this concession.

What is a Professional Arts Business?

An in-valuable precedent was set by the case PedleyVs Commissioner of Taxation in the Administrative Appeals Tribunal on 9 February 2006. The taxpayer has academic qualifications in fine arts and was proficient in several mediums; but she also maintained substantial records and demonstrated clearly "why she considered herself an artist." The Case Report is voluminous but is worth skim reading by anyone who is facing a challenge on this issue or is happy to see a win for justice in art administration.

Please contact our office if we may be of professional assistance.

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