Correction
The latest information from the ATO is that agents do not have to withhold PAYG tax. Therefore readers are advised that the following example regarding the PAYG withholding tax 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 you first solo show for a total of $6000.00. 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 a business (such as a law firm or a restaurant) purchases an artwork and the artist does not supply an ABN, 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 artists fees for exhibitions and loans where the buyer has an ABN but the artist does not, and the goods and/or services 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.
You may decide to avoid the PAYG by providing a written signed statement that you are conducting a hobby. However, 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.
But what if you don’t qualify for an ABN...
A recent article in The Australian Financial Review revealed that the ATO had already excluded 40,000 businesses from their mail out of registration forms for an ABN and plan to use the new compliance weapons to de-register entities that fail the enterprise test. Another 20,000 business will face intense scrutiny after 1 July because they were unable to demonstrate a track record before registration. Eg that they have a track record showing a reasonable expectation of profit , in other words.
The ATO is using the introduction of an ABN as a mechanism for weeding out unprofitable businesses that run at net losses. Those business already excluded can still apply for an ABN but will be subject to detailed questioning about their activities. It should be also noted that the applications received after 31 May could not be guaranteed an ABN before 1 July, so if you don’t register before then, the PAYG 48.5% withholding tax would apply until an ABN is issued. If you have not receive an ABN registration package or a GST registration package by now, it may be that the you are one of the 400,000 business that the ATO has automatically excluded and so you will need obtain the ABN registration pack from you nearest post office.
When dealing with agents, it is largely presumed that the agent will have an ABN and in many cases will also be registered for GST whilst the artist or creator you are representing may or may not have an ABN. But what if you are an emerging manager or agent and do not yet have a history to support your application for an ABN. If you are unable to demonstrate a sufficient track record, or at least a reasonable expectation that your enterprise will make a profit you may not qualify for an ABN. This could result in a situation where you represent a creator who has an ABN but you do not, the creator will be required to deduct PAYG withholding tax of 48.5% from your commission.
