Rachael Cann is a volunteer at Arts Law. This article was written with the assistance of Simon Etherington, Legal Officer.
Thank you to Steve Miller, Accountant, Steven J. Miller & Co. for contributing to this article.
Following on from the article Artists and the GST: the confusion stops here (December 2001) in which Arts Law accountant Steven Miller dealt with issues relating to artists who are registered for the Goods and Services Tax (GST), we now turn to examine in greater detail the situation of artists who are not GST registered.
According to the Australian Taxation Office, you are required to be registered for GST if your annual turnover (or projected annual turnover) is $50,000 or more. If you do not fall into this category you are not required to register.
For artists who are not registered for the GST, any contract with an art gallery or other GST-registered retail outlet in which they to sell their artwork (such as cafés or framing galleries) needs careful deliberation. The artist must determine what the agreement says about the passing of title in the artwork. If the contract is unclear, seek further advice from a lawyer. Often, the gallery is only acting as the artist's agent and the title in the artworks never passes to the gallery but directly from artist to buyer.
However, it is important to note that when words such as 'agent/agency' or 'consignment' are used in a contract, the substance of the contract may not automatically match up with the meaning of these words. Seeing a word such as 'agent' in the contract is only indicative – it should not be relied upon to determine whether or not the gallery is acting as your agent when your artwork is sold. It is the substance of the agreement that counts!
There are 2 situations that may apply to a GST unregistered artist:
where the gallery is selling the artist’s artworks on a consignment basis at an agreed commission rate.
- where the artist sells his or her artworks to private individuals, businesses or to a gallery, café etc.
In relation to 1, as the artist is not registered for GST the gallery will sell the artworks to its clients GST free. However, as the gallery is more than likely registered for GST it will charge the artist the agreed commission plus GST.
It is very important that artists ensure that they confirm whether the Gallery commission percentage includes or excludes GST. For example, the Gallery in consultation with the artist sets a price of $3,000 on the artwork and they agree a commission rate of 30% – Is the commission $900 (30% x $3,000) or $990 (30% x $3,000 = $900 + 10% GST = $990)? A costly mistake for the artist if he or she does not confirm all the details at the time of engaging the Gallery or café.
As the artist is not registered for GST, he or she will not be able to claim the GST back from the Australian Taxation Office, however the full cost of the commission (including the GST charged) will be a tax deduction.
In case 2 above, the artist will sell the artwork for the price that the artist sets for the work. The artist will not charge the private individual, business, gallery or café GST.
However, if the artist does not have an ABN and he or she sells artworks directly to a registered business, the business will be required to withhold 48.5% of the purchase price of the artwork. If this were to happen the artist will be able to claim back the tax withheld in his or her annual tax return.
Further, GST unregistered artists will be aware that they can opt to register for GST even though their annual income is less than $50,000. Of course, this will then mean that the artist must charge GST on all of his or her sales, lodge quarterly BAS returns and be entitled to claim back the GST on all of the artist’s expenses (only those where the artist has been charged GST eg., bank charges and purchases from GST unregistered suppliers do not include GST).
If the artist chooses to remain unregistered he or she will be entitled to claim the full cost of supplies purchased and expenses incurred (including the GST if charged) in his or her annual tax return.
So when does an artist register for GST?
When his or her actual or projected annual sales are greater than $50,000.
When a gallery will not show an artist’s work unless they are registered and the artist is desperate to show their work there
When the artist is expecting to buy very expensive equipment or a large stock of materials and it makes sense to get 1/11th of the purchase costs (the GST) refunded by the ATO
When the artist is not concerned about the paperwork required each quarter and can responsibly retain and keep safe the net GST collected, that is required to be forwarded to the ATO
- When the artist sells a lot of his or her work to businesses and those businesses are looking to obtain an input tax credit when they acquire the artist’s work
Note: The Arts Law Centre of Australia has a sample artist-gallery agreement, which makes it clear that title does not pass to the gallery.