As first published in ART+law, March 2000.
Correction - Agents & Artists & PAYG
The latest information from the ATO is that agents do not have to withhold PAYG tax from payments made to principals. As a consequence readers are advised that the following example regarding the PAYG withholding tax used in our article "Your Number is up: ABN. PAYG & GST" on page 7 of the last issue of ART+law was incorrect:
"You are an artist, successfully selling out your first solo show for a total of $6,000. The Gallery will deduct its usual commission of 30-40% of sales and then because you don't have an ABN deduct a further 48.5%".
However...
If the buyer of the artwork was a business (such as a law firm or a restaurant) and the artist does not supply an ABN or a declaration to the effect that they are a hobbyist, then the business will be required to deduct the PAYG withholding tax of 48.5 % from the purchase price and remit it to the tax office.
This situation will also arise for commissions, art prizes, and artist fees for exhibitions and loans where the buyer has an ABN but the artist does not, and the goods and/or services supplied by the artist/creator are not for a wholly private or domestic purpose.
For example, you are an artist and your work has been selected by a major public art institution for an exhibition which will tour Australia in January 2001. If you do not supply an ABN, 48.5% PAYG withholding tax will be deducted from the artist fee and remitted to the ATO on your behalf.
What if you are a hobbyist?
You may decide to provide a written, signed statement to the business purchaser declaring that you are conducting a hobby and therefore PAYG is not applicable.
The downside of this approach is that if you claim to be a hobbyist, you are not carrying on a business and therefore you cannot deduct business-related expenses associated with your arts practice from your income.
What if your agent doesn't qualify for an ABN...
It is generally assumed that agents will have an ABN, and in many cases will also be registered for GST whilst the artist or creator being represented may or may not have an ABN. But it is possible (such as in the music field) that a newly established agent has not qualified for an ABN but represents a creator who does have an ABN. As a consequence the creator would be required to deduct PAYG withholding tax of 48.5% from his or her agent's commission.
The potential difficulty of qualifying for an ABN is highlighted by a recent article in The Australian Financial Review which reported that the ATO "has already excluded 40,000 businesses from registration for an Australian Business Number..." and "...another 200,000 new businesses will face intense scrutiny after 1 July because they were unable to demonstrate a track record before registration..." (Paul Cleary, "Tax Office rejects 40,000 ABN applicants" AFR p.3 15/3/2000)
It appears that the ATO plans to use the introduction of the new tax system as a mechanism for weeding out businesses that run at net losses - a situation common to many creators.
Time is running out
The ATO has also reiterated its advice to business that applications received after 31 May cannot be guaranteed to be issued with an ABN before the 1 July deadline.
If you don't register before then, the PAYG withholding tax of 48.5% will apply to any applicable payments until an ABN is issued.
Time is fast running out if you intend to register for an ABN so get along to your nearest post office if you haven't yet obtained a registration pack.
Further information
The ATO has published booklets including Guide to Pay As You Go for Business and Arts and Culture & the New Tax System available from their website www.taxreform.ato.gov.au or through the Tax Reform Infoline on 13 2478.
Further information on PAYG can be obtained from the Federal Treasury's website www.treasury.gov.au and information on The Review of Business Taxation ("the Ralph Report") can found at www.rbt.treasury.gov.au
GST information can also be requested through the GST Assist Helpline on 13 3088 and start up assistance can be found at www.gststartup.gov.au
