Tom Lowenstein's Recent Submission to the Minister for the Arts regarding the "Integrity Measures" Rulings of 2000 and 2005 Affecting the Visual Arts Sector

In my capacity as Executive Director of the Australian Artists Association (formerly The Painters and Sculptors Association), as well as the Senior Partner of Lowenstein Arts Management, Certified Practicing Accountants with offices in Melbourne and Sydney, I am making a submission regarding the "Integrity Measures" rulings of 2000 and 2005, which affect the Visual Arts Sector.

Our firm has acted as accountants and advisors to artists for the past 30 years, and at present we attend to tax affairs of some 2,000 artists, predominantly visual artists, but also writers, musicians, actors, photographers, ceramicists, and others in the creative arena.

In June 2000, the Government introduced "integrity measures" [Legislation dealing with the losses from non-commercial activities] which are having serious consequences for some artists.

The Legislation precluded the artist from claiming losses from such business activity, unless he or she met one of the four criteria:

  • Assessable income had to exceed $20,000;
  • A profit had to be made in 3 out of 5 years;
  • Assets utilised in the business have to exceed $100,000;
  • Utilised real estate had to exceed $500,000.
  • Subsequent amendments to the Legislation enabled artists with income from other sources of less than $40,000 to offset their art business losses against this other income.

Without a doubt, this has been a great assistance to low income earners. However, it is a major problem for artists who receive income in excess of $40,000 and are thus precluded from deducting the losses from their art related activities.

My understanding of the background for the integrity measures was to stop hobby farmers from rorting the tax system; yet it is unlikely that many of these taxpayers would be able to meet at least one of the criteria, whereas there are many struggling artists who are unable to meet any of the four criteria.

For a struggling artist to achieve sales of $20,000 every year is extremely difficult, if not impossible, and even many established artists are not guaranteed successful sales from each exhibition.

Similarly, it is unlikely that young artists will show a profit in three out of five years and to my knowledge, very few could claim to utilise $100,000 in assets or $500,000 in real estate in their business.

In 2005 a Ruling was issued by the Taxation Office, after lengthy consultations with a number of arts organisations and individuals, including myself, which set the criteria to define whether an artist is "carrying on a business as a professional artist."

It seems a travesty of justice, if an artist meets the criteria to determine that he or she is carrying on business as professional artist that these artists have then to meet the additional criteria mentioned above.

There is no justification in putting additional conditions on artists' ability to claim legitimate business expenses once they have established that they are carrying on business, as a professional artist.

The limit of $40,000 of other income, which an artist can earn, was set in 2000 and has not been indexed, despite the fact that the cost of living has increased by some 25%.

The current economic situation can only add to the difficulties that artists experience in their desire to eke out a living from their profession.

This Legislation affects those artists who are struggling to make ends meet and who can the least afford to forego the tax deduction on the losses from their art related activities.

In fact this Legislation has the effect of penalising artists for their lack of financial success, which I am sure is not the intentions of the Legislators.

© Tom Lowenstein, 2009

Date posted: June, 2009