Part Three: Demonstrating Intention To Profit

Demonstrating intention to profit from arts activities

Further, the ATO recognises that in the case of an arts business, which is a notoriously high risk commercial activity where there is more variability between the cost of creating the art and its commercial value, it may often be difficult to assess whether a profit motive exists solely from whether a profit has in fact been made by the activity. Therefore, further activity tests are applied to determine whether a taxpayer has a genuine intention to profit from their arts activities, these being:

·       endeavouring to bring the art work or service to relevant markets ;

·       creating or enhancing industry contacts (for example gallery owners, art dealers, literary or performing arts agents, critics);

·       offering art work for sale as well as actual sales of art work to the public;

·       offering expert services through commission or consultancy;

·       related income seeking activities (other than direct sales) including applying for grants, awards, patronage, commissions, and so on;

·       making their art work accessible to the public through activities designed to raise the profile of the taxpayer as an artist; for example: publicly exhibiting art works; creating works for public performance, contributing written work for publication;

·       entering art competitions, residencies and award events;

·       undertaking research into the proposed arts business and consultation of experts (art experts or business advisers) prior to and during the activity; and

·       reputation building as part of an overall intention to make a profit.

The ATO further recognises the potential for arts businesses to have periods where minimal or no income is produced, and it recognises this business indicator in the following ways: 

·       the artist practises their arts skills in the manner and for the time required to maintain a high professional standard;

·       the arts activity is conducted with sufficient regularity to demonstrate a commitment to engage in a business, not just indulge a hobby or pastime;

·       the artist regularly participates in activities designed to promote their art work and/or build their reputation as an artist. Depending on the type of art work involved, this can include such things as the setting up of a website to display their works; circulation of invitations to art openings or exhibitions; or entering art competitions; and

·       the artist engages in a systematic application of their skills across a variety of artistic endeavours.

As an “arts business” however you must be concerned with the view of the ATO in borderline cases.  In such cases it will be necessary for a taxpayer to be able to demonstrate regular attempts to promote themselves and their artwork to the public, for the purpose of finding or creating markets for their artwork.

For further information please feel free to contact us at Financial Control and Management.