NAVA advocates for tax reform to exempt art prizes and grants from taxation and calls for removing inequitable provisions that unfairly burden artists navigating inconsistent and low incomes.
According to NAVA’s recent Member Survey, tax reform is a top advocacy priority for artists and arts workers. An overwhelming 73% of respondents emphasised that changes to the tax system are either “extremely” or “very important” to their work and practice, highlighting growing frustration among artists about the financial strain caused by current tax policies - something NAVA is keen to see change.
Under current legislation, an artist “in business” must include all income related to their art practice in their assessable income, which includes grants and prizes. These are considered income earned in connection with their artistic practice and are subject to tax. While tax averaging can help mitigate some of this burden by smoothing out the impact of large, irregular earnings over a five-year period, the income from prizes is still taxed, and navigating these provisions often requires costly tax advice, which many artists cannot afford.
The financial reality for Australian artists is already challenging, with many living on incomes well below the poverty line. Research by David Throsby reveals that the average income earned by visual artists for their creative work alone is just $23,600 per year. Yet, despite this precarity, the Australian Tax Office (ATO) requires artists to pay income tax on the rare and highly competitive prizes and grants that are meant to help them sustain their practices. Securing these awards is costly and time-consuming, and after expenses and tax, they often provide far less financial relief than intended.
NAVA has long argued that this situation is unsustainable and advocates for tax reform that exempts all art prizes, government grants, and fellowships. These awards are not a form of regular income but are rare and vital financial lifelines that allow artists to continue their work and enrich Australia’s cultural landscape.
Under current tax laws, prizes and awards related to an individual’s profession are considered taxable income. This means that art prizes and grants fall under the same tax rules as regular employment income. However, employment income is not subject to tax averaging, whereas income from art prizes and grants may be, depending on the artist’s circumstances. The ATO considers several factors to determine whether a prize is taxable, such as the purpose of the prize and its connection to the artist’s professional activities, such as whether receiving prizes is a common occurrence. This often leads to taxes on the financial support designed to help artists continue their practice, despite their inconsistent and often low earnings.
For many artists, income from creating art is erratic, and the occasional prize, grant or fellowship can be transformative, allowing them to continue their practice, cover living expenses, and invest in future projects. Subjecting these rare and unpredictable awards to personal income tax simply reduces their financial value.
NAVA’s continues to call on the Treasury to introduce a tax exemption for all artist prizes, fellowships and government grants. These awards should be recognised as rare and significant financial boosts rather than regular income and taxed accordingly. Removing this tax burden would allow artists to reinvest in their practice and contribute to the arts ecosystem.
Additionally, NAVA is also pushing for broader tax reforms that recognise the unique financial realities faced by artists. One of these key reforms involves the ATO's "in business" test, determining whether an artist’s activities qualify as a business or a hobby for tax purposes.
The Taxation Ruling: Income tax: carrying on business as a professional artist (TR 2005/1) provides a tool to distinguish between professional artists and hobbyists for tax purposes. This ruling already accounts for the unique nature of artistic careers, such as long lead times, profit variability, and the need for day jobs to fund the practice. However, under the New Business Tax System (Integrity Measures) Act 2000, some artists are still blocked from claiming their art practice expenses because of the Non-Commercial Losses (NCL) provisions.
To claim deductions, artists must satisfy at least one of the following tests:
NAVA asserts that these criteria unfairly disadvantage artists seeking to claim their art expenses. Emerging artists are unlikely to meet Tests 1 or 2, although these could be overridden with clear evidence of carrying on a business. Test 3 is typically only met by artists with substantial equipment investments, such as welding gear, pottery wheels, or kilns. Test 4 is largely irrelevant, and Test 5, which caps non-arts income at $40,000, disproportionately affects artists with teaching jobs or other supplementary income, especially since this cap has not been adjusted since the provisions were established.
NAVA believes that arts businesses should be exempt from the NCL provisions altogether. Any arbitrary thresholds, such as earning $20,000 or making a profit in three out of five years, do not reflect the realities of an arts practice—especially when an artist has already satisfied the tests under TR 2005/1, which acknowledge the long timeframes and variability of profit in creative careers.
The NCL provisions place an unnecessary burden on artists, particularly those balancing non-arts jobs to support their creative work. Exempting arts businesses from the NCL provisions would align with existing tax rulings that already recognise the complexities of sustaining an arts career.
NAVA’s advocacy for tax reform is about more than just financial relief for individual artists. It’s also about ensuring artists are valued and supported. Removing income tax from art prizes, grants, and fellowships would provide significant support to artists, allowing them to continue their practice and contribute to the cultural landscape. Broader reforms to the tax system, including the "in business" test and exemptions from the NCL provisions, would offer much-needed relief to artists navigating the unique complexities of sustaining an arts career.
Photo by Joan Cameron-Smith.
ID: Photo of an artist at a demonstration holding a white placard with black block text that reads, “I AM AN ARTIST AND I PAY TAX."
© Copyright 2024. All Rights Reserved.
