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.

Part Two: Distinguishing an Art Business from other Businesses

What distinguishes ‘art businesses’ from other businesses?

The ATO has recognised that art businesses, because of the nature of art activity, typically have different characteristics to those found in other businesses. For example professional arts businesses are often motivated by creative purposes and the desire to influence public opinion and a large part of being in business as a professional artist may involve activities directed towards reputation building and audience/market creation. 

However, as with all professions a professional arts business must be distinguishable from a hobby or recreation, and over the years the courts have established and applied the following indicators to be relevant to the question of whether a taxpayer's activities amount to the carrying on of a business, these being:

·       whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

·       whether the taxpayer has more than just an intention to engage in business;

·       whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

·       whether there is repetition and regularity of the activity;

·       whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

·       whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

·       the size, scale and permanency of the activity; and

whether the activity is better described as a hobby, a form of recreation or a sporting activity.

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

Part One: Definitions

What is a ‘professional artist’?

As with all business ventures, the ATO really has the first and last word on what principles are to be applied in determining whether an artist is carrying on business as a 'professional artist’.  Without trying to overcomplicate the issue, the law is set down by the Income Assessment Act 1997 (ITAA 1997), and specifically relates to:

·       S 6-5

o   Income according to ordinary concepts, because it has been earnt in the ordinary course of carrying on such a business;

·       S 8-1

o    whether a loss or outgoing has been necessarily incurred

·       Division 35

o   Whether a deferment of losses applies

·       Ss35-10(4)

o   Whether the second arm of the exception concerning a 'professional arts business'

For the purposes of definition ss35-10(5) provides the definition of “professional arts business” activities as either

·       an author of a literary, dramatic, musical or artistic work;

·       a performing artist; or

·       a production associate.

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

Performing Artists, The ATO and Your Rights and Responsibilities

Over the course of a five part series we will give an overview of the current ATO legislation as it applies to performing artists, the “business of art” and the minimal expectations from an administrative perspective.

Whilst taxation is not what some would call exciting, it permeates all facets of society, including us with a creative soul, and it is vital for your business’s success to understand your rights and responsibilities in relation to the ATO and specifically TR 2005(1).

Why you should read this series:

·       to be a performing artist and not create an “arts business” around this activity is doing yourself a disservice;

·       if you can legitimately show that your “arts business” is designed “for-profit” then you have available to you a number of range of options which you otherwise would not;

·       if you already have an “arts business” are you meeting commercial practices requirements as stipulated by the ATO?

For further information please see: http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20051/NAT/ATO/00001>

Part One: Definitions

Part Two: Distinguishing an Art Business from other Businesses

Part Three: Demonstrating intention to profit

Part Four: Implementation of Administration Controls

Part Five: Real Life Case Example

Science of Music #2

I wonder how much of the euphoric is caused by natural as compared to ingested narcotic release?

http://www.abc.net.au/science/articles/2011/01/10/3109560.htm?site=science&topic=human

Science of Music

Always wondered why Sound Garden is better to run to than Spit Syndicate

http://www.abc.net.au/science/articles/2005/10/10/1478792.htm

Petition - Stop the Destruction of Live Music

Letter of Petition to the Minister for Consumer Affairs
If you care about live music in Melbourne and Victoria, add your name to this and hopefully together, we can stop the destruction of the live music scene.
To support this petition, please copy this entire message and paste it into a new email to send to your friends, (doing this will avoid those unnecessary ">>" characters). Don't forget to add your name, suburb, state and age, and send to those who also care about supporting Melbourne and Victoria’s live music scene.
If you are the 50th signatory, please copy and paste the entire message and send to: petition@bandfinder.com.au (please remember to remove any business or personal email signatures before copying and pasting this message and sending to friends).
We at bandfinder will consolidate and present to the Minister of Consumer Affairs on 14 February 2010.
Want to keep up-to-date with what is happening? Go to bandfinder.com.au <http://www.bandfinder.com.au> and sign-up.
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Letter of Petition
To the Hon. Tony Robinson, MP, Minister for Consumer Affairs
Dear Minister,
We the undersigned are proud and passionate supporters of live music in Melbourne and Victoria.
As punters/musicians/venue operators we welcome legislative change in attempting to curb anti-social behaviour and providing safer environments where all can enjoy Melbourne and Victoria’s music scene. However, the current demands as prescribed by the Liquor Control Reform Act 1998 (incorporating amendments effective as at 1 January 2010) are placing overly restrictive burdens, financial and otherwise, upon many small to medium venue operators that support or want to support the live music industry in Melbourne and Victoria.
The current demands have already had an impact on some of Melbourne’s most known and respected larger scale live music venues. What chance do smaller venues, who supply the space for emerging acts to learn and hone their crafts, have of complying with these new regulations.
We respectfully request that you consider our voice and modify the existing legislation before more venues are affected, and subsequently restrict the sustainability of Melbourne and Victoria’s live music industry.
Yours faithfully
(Remember to include your Name, Suburb, State, Age)
1. Andrew Smith, Hawthorn, VIC, 37
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If you are the 50th signatory, or if it is the 13th Feb 2010, please forward this petition to: petition@bandfinder.com.au