Edited version of private advice

Authorisation Number: 1012679099499

Ruling

Subject: Business - professional arts business

Question

Are you carrying on a professional arts business?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You carry on activities in relation to an art practice.

You have provided the following information in relation to your art practice activities.

• Your artwork is displayed and available for sale in your studio gallery as well as commercial galleries.

• You have a professional website that shows your work available for sale

• You hold regular exhibitions.

• You keep details records of the costs associated with your activities.

• You have qualifications relevant to your field of work.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 35-10(5)

Reasons for decision

A professional arts business is a business you carry on as the author of a literary, dramatic, musical or artistic work, or a performing artist or production associate (subsection 35-10(5) of the Income Tax Assessment Act 1997).

Taxation Ruling TR 2005/1 provides guidance on the principles to be applied in determining whether a professional artist is carrying on a professional arts business. The ruling recognises that there are special factors affecting artists. However, a professional arts business must be distinguishable from a hobby or recreation. Paragraph 10 of TR 2005/1 states that the courts have held that the following indicators are relevant to the question of whether a taxpayer's activities amount to the carrying on of a business:

• whether the activity has a significant commercial purpose or character

• 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 regularity and repetition of the activity

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

• whether the activity is planned, organised and carried on in a businesslike manner such that it is described as 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 sporting activity.

No individual factor is determinative, but should be weighed up in conjunction with the other factors.

TR 2005/1 discusses Pedley v FC of T [2006] AATA 108 (Pedley's case) at paragraphs 95A and 95B:

The taxpayer was well qualified in the field of arts and had worked as a professional artist for 20 years. She had a studio, employed an accountant, had a website and sought to publicise her work. The taxpayer took part in many exhibitions over the years but few sales or commissions eventuated. Her activities were funded in part by income from lecturing in art and by grants. The question for decision was whether the taxpayer was carrying on a business as a professional artist.

The Tribunal held that the taxpayer was carrying on a business as a professional artist during the relevant year. It found that the taxpayer had more than merely an intention to carry on business as an artist, and that her career in this respect was her major occupation to which other activities were subordinate. Although the taxpayer had been unsuccessful in commercial terms, it was not necessarily the case that this would always be so.

We consider that your case is similar to Pedley's case; while you have not been profitable to date you are qualified in your field, have a website to showcase your work as well as taking part in exhibitions. After weighing up the relative business indicators and objective facts surrounding your case it is considered that you are carrying on a professional arts business for taxation purposes.