Artists Income Tax

For income tax purposes, artists who can demonstrate that they are 'in business' as a professional rather than a hobbyist, are usually able to claim their art practice expenses against all forms of income.

Like all other people who are running an enterprise, artists are entitled to claim their costs for income tax purposes. While the law applying to artists is no different to the law applying to any other business, the Australian Tax Office through its Tax Ruling: carrying on business as a professional artist (TR 2005/1) recognises that arts businesses typically have different characteristics to other businesses. It accepts that a large part of being in business as a professional artist may involve activities directed towards reputation building and audience/market creation.

The reality is that many artists return losses from their art activities. Australian studies conducted over many years have confirmed that most artists seek other sources of income in order to support their practice as an artist. However, most artists still hope for financial success as artists.

This may be achieved in a variety of ways: by developing contacts and networks in the art world; having exhibitions which may offer art work for sale; actually selling works to the public; offering expert services through commission or consultancy; applying for grants or residencies and seeking patronage or sponsorship; making work accessible to the public through activities designed to raise the artist's profile including giving talks and workshops and seeking media coverage; entering art competitions, awards and prize events; undertaking business research and consulting with accountants or other experts; planning the future direction of the art activities and documenting progress.

Over eight years, NAVA spearheaded a successful campaign by the whole arts sector for the introduction of a Tax Ruling by the Australian Tax Office (ATO), which finally came into effect in January 2005. The Tax Ruling: carrying on business as a professional artist (TR 2005/1) ensures that the professional status of artists is measured against a broad range of arts industry criteria rather than just profit making alone. However, it still remains the case that artists have to demonstrate that they regard themselves as running a business which has a profit making intention.

For artists, tax accountants and staff of the ATO, the Ruling clarifies when artists are recognised as being 'in business' for income tax purposes rather than being regarded as hobbyists. This entitles artistic creators in any discipline (not just visual artists) to claim their arts practice expenses against all forms of income.

NAVA's work was made possible through the expertise provided by pro bono tax lawyer Judy Sullivan assisted by Jill Savage, both of Mallesons Stephen Jaques as well as Delia Browne previous director of the Arts Law Centre of Australia.

Read the ATO Taxation Ruling: carrying on business as a professional artist (TR 2005/1).

Artist Test Case

In 2005 a respected Sydney artist challenged the adverse findings of the Australian Tax Office (ATO) after an audit of her income tax return. She appealed the decision in the Administrative Appeals Tribunal (AAT) and won what is now a landmark case for all artists.

The taxpayer had been an artist for over twenty years. Her main focus was installation works. She also created small sculptures and 'cyanotypes' (photographs created by exposure to natural light). She had some minor sales of her art, but had failed to return a profit from her art activities in her tax returns.

Assessing the artist's work profile against the terms of the ATO Public Ruling: carrying on business as a professional artist (TR 2005/1), her representing lawyers (Judy Sullivan of Mallesons, Stephen, Jaques assisted by Delia Browne) made a persuasive case despite the fact that the artist was returning net losses over a number of years.

Evidence was provided on the taxpayer's academic qualifications, her background and work as an artist, and the activities undertaken to build her reputation and bring her works to the attention of the relevant market in the hope of securing a commission for her works. She maintained a separate studio to produce her art, and exhibited her works consistently at major Australian galleries, with her works being offered for sale. She sought gallery representation, although that did not eventuate. She brought her work to the attention of the public through residencies, art competitions, media coverage and self promotion. The artist had produced a colour booklet which contained photographs and critiques of her major works over many years, which she distributed to galleries or sold. Her main source of funding was through grants from the Australia Council.

The presiding magistrate Deputy President Block of the AAT recognised the validity and weight of the evidence including the artist's success in bringing her work to the public, gaining government grants, residencies and international exhibition opportunities. Block held that the artist was carrying on a business consistent with the terms in the tax ruling.