How can artists best manage their money?
In this Fact Sheet we turn our attention to the many and varied ways that artists earn their income and see what is the best way for them to manage their cash flow.
Cash flow is an important factor in the running of any business, especially for artists because they need to be able to budget for expenses in a situation of uncertain and uneven income.
Practising artists generate income in many ways:
- Art gallery sales from exhibitions
- Art gallery sales from stockroom
Some artists may supplement their income through full time or part time work.
As most artists’ income is derived from exhibition sales or commissions, which are irregular in nature, it is essential that artists learn to manage and budget their funds in a professional way.
Most artists exhibit on a regular basis, either through galleries or online, and it is with this income that they earn from their professional activity that they have to be able to see themselves through to meeting business and living expenses.
In discussing strategies for managing the irregular income of artists, I will focus my attention on emerging and mid career artists.
Different strategies are needed to deal with each group.
Generally, artists who are commencing their careers will find it difficult to earn sufficient income from their art to sustain themselves. Therefore it becomes necessary to supplement their income by seeking full time or part time employment.
These artists will have difficulty in building up savings and will often lead a hand-to-mouth existence, until their careers ‘take off’.
Most would have to economise, share studio facilities and costs in order to survive.
The proceeds of their sales would go towards paying off debts that they have incurred from family or credit cards, rather than being able to budget for the future.
Many emerging artists have no established gallery relationship. They are looking for opportunities to exhibit either in group shows, public spaces or by entering prizes and competitions.
Generally, most of the emerging artists incur losses in their first few years and, provided they meet the Australian Taxation Office guidelines of “losses from non-commercial activities” or are under the $40,000 income limit, they can get some relief in the form of income tax refunds, which can also assist in paying off debts and/or reinvesting in their art practice.
When income is not only sporadic but also very low it is difficult to budget. In these circumstances, common sense should prevail.
For example, in the event of the artist receiving grants for specific projects, it is advisable to open a separate bank account. This account should be used specifically for that project and not be used for general living expenses.
It is during this transitional period that emerging artists should start to budget and plan their commercial life. Firstly, they need to be aware of their costs and expenses of mounting an exhibition, their monthly overhead costs, as well as their living expenses.
When these artists have a commercially successful exhibition or are in receipt of prizes or awards, they need to consider the income tax implications, the GST implications and to provide for liabilities in these areas.
MID CAREER ARTISTS
Mid career artists are artists who have developed a reputation and have been accepted by a commercial gallery but are not guaranteed regular sell-out shows.
Most of them still need the security of a regular income from other forms of employment.
MAJOR ISSUES TO BE ADDRESSED
Making allowances for GST and income tax.
Some artists get themselves into financial trouble by not setting aside money to pay for GST and for income tax.
If the artist is registered for GST, then 1/11th of the sale proceeds must be remitted to the Australian Taxation Office (ATO).
At times there is a substantial timing difference between the receipt of the funds from the gallery or other forms of income, such as from funding bodies and the eventual payment to the Australian Taxation Office. It is not an uncommon situation that by the time payment of the GST is due to the ATO, the artist has spent the funds.
It may assist some artists to open a separate bank account and deposit approximately 10% of the proceeds from these sales or grants into this GST bank account.
An artist’s liability for income tax is not only determined by his/her income but also by the expenses incurred in the production of the work [which includes studio costs, administration costs, travelling expenses and related costs].
Superannuation and Gifting
In addition, superannuation contributions and gifting of artworks under the government’s Cultural Gifts Programme can have a substantial impact on the tax liability.
This makes it even more important to plan and to provide for the tax liability resulting from all the above considerations.
COMMISSIONS AND GRANTS
Artists are often awarded commissions for large projects, such as sculpture or artwork for a building or public space. The cost of producing the work can be quite substantial.
It is important to ‘factor in’ the costs that are part of manufacturing the commission, be it a mural, sculpture or other artwork.
It is essential that artists are aware of the costs involved in producing the commission and, in fact, ensure that the costs are locked into a contract so that there are no cost over-runs.
As far as grants go, it is important that proper budgeting is undertaken to ensure that all costs are adequately covered by the grant money being applied.
It is important to budget for such costs because payments to other artists at correct rates; and also payments such as superannuation and insurances are important.
Artists need to budget. They need to adopt a financially professional approach to their project and, above all, obtain guidance and assistance from competent financial advisors.
This is not professional advice.
Readers should not act solely on the basis of the material contained in this Fact Sheet.
Items herein are general comments only and do not constitute or convey advice per se; also, changes in legislation may occur quickly.
Therefore, we recommend that formal advice be sought, before acting in any of the areas covered in this Fact Sheet.
References and further reading:
Australian Taxation Office website :
Reference GST, Superannuation, Gifting of Artworks
Australian Master Tax Guide:
Reference GST, Superannuation, Gifting of Artworks
Throsby and Petetskaya, Making Art Work: An Economic Study of Professional Artists in Australia
, Australia Council, November 2017
Report of the Contemporary Visual Arts & Crafts Inquiry, Rupert Myer, June 2002