The Australian Taxation Office’s Public Taxation Ruling – carrying on business as a professional artist (TR 2005/1), which was released early this year, may turn out to be more of an embarrassment for the ATO than an inconvenience for artists. The way the ATO has defined ‘professional artist’ has probably excluded most artists from the income taxation system entirely.
The ATO chose to base its ruling on the fourth definition of ‘professional’ in The Macquarie Dictionary: ‘following as a business an occupation ordinarily engaged in as a pastime’. This locked business inherently into the concept (and – incidentally – relegated art to the level of a mere pastime!)
Artists in Siberia |
Paragraph #3 makes it clear that the ruling applies only to professional artists, by which it means persons who carry on a ‘professional arts business’ as an ‘author of a literary, dramatic, musical or artistic work’. Art works [sic]¹ , it continues, are the products of such a business. Paragraph #7 does allow that an arts business may ‘have different characteristics to those found in other businesses’ and that ‘[a]rt is not always produced with a pre-existing market in mind’ and ‘may involve activities directed towards reputation building and audience/market creation’ rather than sales. But it insists that a ‘professional arts business must be distinguished from a hobby or recreation’, and #8 states that the distinguishing factor is that a business exists for ‘the purpose of profit making….even where [it]is making a loss’ ².
So the only criterion the ATO recognises for a ‘professional’ artist is for the person to have the intention to be in business for profit. No regard is given to other intentions or purposes, even if much time to devoted to it. Making art for art’s sake – as Vincent van Gogh did – counts for nought. This is surely a point of view few outside the ATO would accept.
For further clarification, the reader is referred to #34 and #53. But #34 is successful only in clarifying the professional status of the artist, not whether he/she is in business or not. It speaks – validly – of ‘peer recognition’, qualifications and experience, ‘public recognition (‘is the taxpayer described as such in the media?’)’, ‘meeting the eligibility and selection criteria for grants …’, reputation, membership of professional associations etc. However, this is only words because the rest of the document gives no weight to the concepts at all!
On the other hand, #53 positively demolishes the ruling’s own argument. It admits that ‘there may be no certainty that the art activity will lead to income being derived’ and that ‘people may engage in art activity for purposes other than the desire to make a profit’ – without the realisation that this removes art, as most of us know it, from the realm of business altogether! The logical consequence of this is that, for most artists, the ruling is totally irrelevant and that they are – by definition – entirely outside the income taxation system!
Art, Business and Industry ³
The conflation of the terms business and industry in the ruling is typical of the general looseness and laziness in how we use these terms in this era of economic irrationalism and the hubris of the MBAs. And the ruling is a paradigm example. A business, properly so called, is an organization of humans which exists to make a profit for its proprietors or shareholders. This distinguishes a business from a charity or a vocation. An industry, however, is a particular type of business – one which adds value to a product (as in manufacturing industry). A business need not produce anything – banks, for instance, and real estate agents. Retailers are in business: they buy goods and sell them at a price mark-up to make their profit. Whether farming, mining and prostitution can be termed industries is debatable, but they are businesses. Commercial art galleries are businesses (but not industry). Publicly-owned museums and art galleries are neither businesses nor industry4. The fact that they need money to function – as with artists – is not sufficient to call them either business or industry.
Artists operate in no way like businesses. In fact, the very concept of profit has no place at all in the discussion of the arts. The income that theatres receive from selling seats and painters from selling pictures cannot be seen as ‘profit’ in the same sense that businesses generate income from buying and selling goods produced by others.
Visual art is similar to industry in that it creates products. However – because there can be no pre-existing market for true art – sales (and, therefore, income) cannot be guaranteed. On the other hand, industries only make goods for which there is an established market (otherwise they go broke!). True artists operate disinterestedly, transforming materials into things which never existed before for aesthetic ends. Their products cannot, in fact, be known to any market before they are created, and many of them have no monetary or sale value whatsoever. In fact, the monetary value of a work of art is only conferred on it by the art market (business, not industry) – the world of dealers, galleries, collectors, auctioneers and reviewers. The artist is powerless in all this (and should be protected from it in the national interest, e.g. by resale royalties).
The authoritative Professor David Throsby was howled down by the audience at the Arts Summit in Adelaide in June, 2003, for asserting that the arts is ‘an industry’. Yet this concept is a key one in the ruling. The conflation of artists, art and the art market under the omnibus term ‘arts industry’ is an insult to logic and to fact. Even those who deliberately produce the kind of works for which others have established the market cannot be said to be ‘in business for profit’ in the same way as retailers – who actually produce nothing – are.
The ATO was assisted in drafting the ruling by the National Association for the Visual Arts (NAVA) and ‘a dedicated pro bono legal team of tax experts’, according to the NAVA Quarterly for March, 2005. One would have thought that this team would have realised that ‘professional’ artists use that term purely to distinguish themselves from amateurs, not as a measure of income or wealth. It is, of course, well accepted that there is no consistent relationship between the quality of a work and the price the market will realise for it. And that many great (‘professional’) artists have died in poverty is legend. Artists would have been happier with the first definition of profession in the Dictionary: ‘a vocation requiring knowledge of some department of learning….’
The inadequate theoretical base of the ruling has made it necessary for the ATO to append to it a number of typical cases which are assessed as to their business status. But it is difficult to intuit a consistent logic in these adjudications. They have all been made from the fiscal point of view – which abandons artists to the whims of the bean-counters. Peer assessment, as used by the Australia Council – and in the legal and medical professions – seems never to have been considered.
Tamara Winikoff, Executive Director of NAVA, in an email to artists in January, hailed the ruling as ‘a giant leap towards a new kind of status, one which acknowledges that the arts is an industry with its own legitimate character and purpose … regarded with the same respect as any other form of business enterprise’. But, this is not so. The arts have simply been subsumed under the ATO’s existing parameters for business. It would not have been difficult to consider the arts as its own unique category for taxation purposes. A golden opportunity to do so was passed over. It is simplistic of the ATO to assume that taxable income can only be derived from trading and that its limited definition of professional is in any way adequate to cover the functioning of the arts properly so called.
And – is there really anything new in the ruling? Is it not a fact that artists who regularly sell their works have always had to pay tax on their incomes (with deductions allowable for legitimate expenses)? The ruling changes nothing for these artists – or any artists, really.
Footnotes:
1. By which, obviously, the ATO means ‘works of art’, ‘art-work’ being the pictorial material in a work of graphic design. And the term is never used other than in the visual arts.
2. This is a very naive – and unbelievable – statement: how many people in business for the sole aim of making a profit stay in business when they are losing money?
3. It is necessary to make these distinctions in the interest of rational discussion of the ruling.
4. The Cultural Ministers Council, which recently established the Collections Council of Australia, designated it, in its media release, ‘the national peak body of the collections industry‘!
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