Evan’s Corner: Time to start a conversation

Written by: Evan Lowenstein

Taxation treatment of the arts is one of the many issues that have been neglected by governments of all persuasions over the last eighteen to twenty years.
Now it is time to start a serious conversation about tax reform for the arts.
Following on from the wise and timely comments made by renowned artist, Ben Quilty, I would like to add our voice to the shout out for the Australian government to take the arts seriously and to make some serious gestures towards reforming the tax structure of the arts.
Amongst the failures of government have been the following:

The need to reform the non-commercial losses legislation

This law was originally enacted in the year 2000 and hasn’t been changed for many years. This piece of legislation applies in cases where artists who earn income from sources other than art that exceed $40,000, are prevented from claiming their losses from their art endeavours unless they pass one of four quite difficult tests.

Sales of art have to exceed$20,000 
​Or
Profits have to be earned in 3 of the last 5 years
Or
Plant and equipment need to be valued at more than $100,000
Or
Real Property (ie) a studio has to be worth more than $500,000  

The fact is that in the year 2000 an amount of $40.000 was quite a decent amount to earn as an academic especially in the arts but as time has progressed and with inflation, nowadays this amount is barely an acceptable wage in part time or full time employment.
The amount has not been indexed for inflation nor wages growth.
The implication of this legislation is to effectively prevent artists whose income from other sources is greater than $40,000 but have not been able to pass one of the 4 tests from claiming their art losses against this income. This in effect robs them of valuable tax refunds that they would ordinarily have received.
These losses are quarantined until such time as they are able to pass one of these onerous tests or their income drop below $40,000
It is time for the government to address this unfair position by at a minimum, increasing the threshold of income from other sources beyond $40,000 in order to make the tax system fair and equitable for artists and to make this threshold line up with current earnings.

Tax free treatment of artist’s income.

Tax free treatment of artist’s incomes is quite a contentious issue because it is well know that governments are reluctant to treat certain classes of taxpayers differently.
However, in Australia we have seen precedents for differing tax treatment applied to mining, banking and primary producers.
We feel that with the downturn in the primary art market mainly due to the onerous Superannuation requirements the time is right for the arts to have a differing tax regime. Some examples of where differing tax treatment might apply may include:

• The first $50,000 of annual income from art sales is tax free.
• The current regime of grants and scholarships are tax free
• An increased threshold for GST registration similar to thresholds that apply in Ireland for the arts sector.

These are ideas that I believe are all worth examining.

Overseas experience

I have done some preliminary research into how some other countries are treating their artists. From my observation it looks like there is a move, certainly in some more progressive countries, to really give the arts an incentive. For example, in the French system there is a reduced VAT on artwork sales. The Irish tax system has a higher threshold of VAT registration for artwork sales So, it is clear that some countries are treating their artists more favourably under the tax system as a means of creating cultural capital at the expense of relatively little short-term foregone tax revenue.

Next steps

In the next few weeks I will be engaging a cultural economist to do further studies on these initiatives to look at the economic impact of these changes in the arts and determine which ones would have the biggest positive impact on the artists’ incomes.
In addition, I want to hear from you about how you, as practitioners, would like to see tax reform implemented that would best assist you in carrying out your roles to improve Australian culture.
Please do email me with your suggestions and feedback.