The peak body protecting and promoting the Australian visual arts sector

Artists' Income Tax Non-Commercial Losses

While most professional artists are eligible to claim their art enterprise expenses for income tax purposes, there is a section of the law which will apply 5 eligibility tests: the Non-Commercial Losses section of the New Business Tax System (Integrity Measures) Act 2000.

Under the Non-Commercial Losses section of the New Business Tax System (Integrity Measures) Act 2000 some professional artists are prevented from claiming their art practice expenses because they do not meet the criteria.

In making a determination about whether the artist is eligible to make income tax claims, the Australian Tax Office (ATO) will apply 5 tests of which at least one must be applicable. These are that the art business must:

  • earn more than $20,000 from the business; or
  • make a profit from the business in three out of five years (however small); or
  • own plant and equipment for the business worth more than $100,000; or
  • own real property devoted to the business worth more than $500,000; or
  • earn less than $40,000 income from other activities.

The Non-Commercial Losses section of the New Business Tax System (Integrity Measures) Act 2000

NAVA asserts that unfair barriers should not be put in the way of legitimate professional artists being able to make income tax claims in relation to the costs of running their art enterprise. Since 2005, the Taxation Ruling: Income tax: carrying on business as a professional artist (TR 2005/1) has provided a precise instrument for achieving the Government's objectives of distinguishing between professional artists and hobbyists for income tax purposes.

NAVA is advocating for rising the level of the cap to income which can be earned from non-art activities from $40,000 to $120,000. Currently NAVA estimates that the Act discriminated unfairly against 15 – 20% of professional artists who cannot meet any one of the five criteria. It particularly affects academics or artists who have some success in generating income from non-arts business sources. NAVA contends that it acts as a disincentive for artists trying to generate alternative sources of income. NAVA continues to campaign for this change.

Background

The Non-Commercial Losses rules were introduced to catch the so-called 'Pitt Street Farmers' who ran elaborate farming businesses at a loss, and claimed the losses against their substantial main business income. When first introduced, the farmers lobbied the Government to introduce a limited exception.

Through effective advocacy, NAVA managed to have this same exception applied to artists. Accordingly, the rules do not generally apply if the income from other (ie. non-arts) sources is less than $40,000 in a particular year. However, the cap on this non-arts income does discriminate against a proportion of artists who should be entitled to make their legitimate art business expense claims.

Artists' Income Tax Non-Commercial Losses