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Edited version of your private ruling
Authorisation Number: 1012520528816
Ruling
Subject: Above-average special professional income
Question 1
Is a specific artist considered an 'artist' as described at subsection 405-25(1) of the ITAA 1997?
Answer
Yes.
Question 2
Is income derived from your employment as a contracted specific artist eligible for concessional tax treatment from the relevant financial year under Division 405 of the ITAA 1997?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You arrived in Australia and became a Australian resident for tax purposes during the relevant financial year. You were a non-resident of Australia for tax purposes prior to that date.
You are a specific artist employed on a contractual basis with an Australian company.
Your employment contract is for one specific project only. After the project is completed you are not guaranteed a position with the company.
You earned more than $2,500 in taxable professional income during the relevant financial year.
Relevant legislative provisions
Income Tax Assessment Act 1936 - Division 16A
Income Tax Assessment Act 1997 - Division 405
Income Tax Assessment Act 1997 - Subsection 405-10(7)
Income Tax Assessment Act 1997 - Section 405-20(2)
Income Tax Assessment Act 1997 - Subsection 405-25(1)
Income Tax Assessment Act 1997 - Section 405-30
Income Tax Assessment Act 1997 - Subsection 405-50(3)
Income Tax Assessment Act 1997 - Subsection 405-50(5)
Reasons for decision
Detailed reasoning
Division 405 of the ITAA 1997 applies special rates of tax on the above-average professional income of special professionals. It reduces the effect that fluctuations in special professional income would otherwise have on the income tax liability of these persons.
Under this division you are only subject to concessional tax treatment if:
§ you are an individual
§ you are an Australian resident at any time during the income year
§ you are a special professional, and
§ your taxable professional income is more than $2,500 in the current or earlier income year.
Subsection 405-25(1) of the ITAA 1997 states that you are a special professional if you are the author of a literary, dramatic, musical or artistic work (emphasis added).
Are you an author of a literary, dramatic, musical or artistic work
Definition of author
There is no definition for an 'author' in the ITAA 1997 or Income Tax Assessment Act 1936 (ITAA 1936), but the explanatory memorandum which accompanied the introduction of the former Division 16A of the ITAA 1936 (now Division 405 of the ITAA 1997) states that it is linked to the use of those expressions in the Copyright Act 1968.
Although not specifically defined in the Copyright Act 1968, an 'author' is taken to mean the person who first brings items, such as a text or image, into existence.
Section 10 of the Copyright Act 1968 contains the definition of the term artistic work.
Artistic work means:
(a) a painting, sculpture, drawing, engraving or photograph, whether the work is of artistic quality or not;
(b) a building or a model of a building, whether the building or model is of artistic quality or not; or
(c) a work of artistic craftsmanship to which neither of the two last preceding paragraphs applies;
but does not include a circuit layout within the meaning of the Circuit Layouts Act 1989.
In consideration of the above definition, as a digital artist you are considered an author of artistic work and are therefore a special professional as described at subsection 405-25(1) of the ITAA 1997.
Subsection 405-20(2) of the ITAA 1997 states that you can include as assessable special professional income any assessable income that you derive as a reward for providing services relating to your activities as a special professional, provided you are not excluded from doing so by section 405-30 of the ITAA 1997.
Exclusion
Section 405-30 of the ITAA 1997 provides details of the exclusions from what can be counted as amounts of assessable special professional income for authors of artistic work.
Where a person engages in activities as an author of artistic work, in meeting his or her obligations under a scheme to provide services to another person, any assessable income derived from those activities cannot be included in assessable professional income unless the following conditions are satisfied:
(a) the scheme was entered into solely to require services to be provided by creating one or more artistic works, and
(b) the services have not been provided to the other person under successive schemes that result in substantial continuity in the provision of those services.
Taxation Determination TD 93/65 provides an example of a computer programmer who is employed, and in the ordinary course of that employment writes a computer program. The income derived from that source is not subject to concessional treatment because the employment results in the programmer continuing to render services to the employer.
In your case, as you are employed on a contractual basis you are not considered to be providing your services under successive schemes that result in substantial continuity in the provision of those services.
Therefore the exclusion does not apply to the income you derive from your employment and the concessional treatment can be applied to the income derived from that source.
The calculation of concessional tax treatment
First income year for averaging purposes
Subsection 405-50(3) of the ITAA 1997 states that the first income year for which you have special professional income is the first income year (professional year 1):
(a) during all or part of which you are an Australian resident; and
(b) for which your taxable professional income was more than $2,500.
As you were an Australian resident and your taxable professional income was more than $2,500 during the relevant financial year, that is considered your professional year 1.
Calculation method - phasing-in arrangements
Subsection 405-10(7) of the ITAA 1997 provides that there are phasing-in arrangements which apply to work out your average taxable professional income for an income year that is less than 4 years after professional year 1.
There are two methods for this calculation, one of which favours people who were Australian residents for at least part of the income year before professional year 1.
The average taxable professional income is calculated using the table below (subsection 405-50(5) of the ITAA 1997).
Average taxable professional income during phase-in period | |||
Method 1 |
Method 2 | ||
Item |
Current year |
Average taxable professional income if you were an Australian resident for all or part of the income year immediately before professional year 1 |
Average taxable professional income if you were a foreign resident for all of the income year immediately before professional year 1 |
1 |
Professional year 1 |
Nil |
Your taxable professional income for professional year 1 |
2 |
Professional year 2 |
1/3 of your taxable professional income for professional year 1 |
Your taxable professional income for professional year 1 |
3 |
Professional year 3 |
of the sum of your taxable professional income for each of professional years 1 and 2 |
of the sum of your taxable professional income for each of professional years 1 and 2 |
4
|
Professional year 4 |
of the sum of your taxable professional income for each of professional years 1, 2 and 3 |
1/3 of the sum of your taxable professional income for each of professional years 1, 2 and 3 |
|
Note: If you were a foreign resident for all of the income year immediately before professional year 1, the effect of method 2 of the table is that your taxable income for professional year 1 will not include above-average special professional income. | |||
Application to your circumstances
As you were a non-resident for the entire period prior to professional year 1, your average taxable professional income is calculated using method 2 in the table above for the relevant and subsequent financial years.