Photo by Parrish Freeman on Unsplash

Professor John Prebble has plausibly argued that income tax law is dislocated from the facts to which it relates and therefore leads to different treatment of similarly-situated taxpayers, inequity in income burden, and breaches of the related principle of neutrality. Economic inefficiencies may also arise if government confers concessions on particular taxpayers without good reasons, such as remedying market failure.

Copyright law is similarly dislocated from the artistic practice of many visual artists. The kinds of activities and outputs for which copyright law is most suitable (works that lend themselves to reproduction) do not reflect the artistic practice and broader lived experience of visual artists, who typically produce singular artworks. These artefacts have value, in part, because they are unique. Most visual artists typically gain little or no direct pecuniary benefit from copyright, and therefore cannot enjoy any tax advantage conferred on copyright income.

How copyright works and how visual artists earn income?

Under British-heritage law, copyright subsists in specified types of original works. A copyright holder has the exclusive right to issue copies of the work to the public, for example, a novelist earns royalties from sales of their books. In Australasia, a ‘creative spark’ is not unequivocally required for copyright to subsist. The most mundane of commercial texts and graphic works are copyright-protected if they fall within a prescribed category and originate from an identifiable author. Conversely, many types artistic outputs may not attract copyright.

If not from copyright, how do visual artists typically earn income? For creators of singular artworks, sales in the primary market is their principal source of income. Under Australia’s artist’s resale royalty right scheme, some income may also be earned in the secondary market, although most annual payments are in the AUD50 – 500 range. (New Zealand has a similar scheme in the pipeline.) Some prestigious competitions provide significant prize money for select artists. Government grants are also available but tend to be awarded to established artists. The historical custom of patronage of artists has been reimagined by platforms, such as Patreon, which enable art lovers to fund artists or particular projects.

Visual art practice today is invariably a graduate profession. Some artists are, therefore, able to earn a stable income from teaching, which funds their artistic practice. But, since such jobs are scarce, many artists seek casual work, often in hospitality. According to David Throsby and Virginia Hollister, ‘Australian artists are able to spend just 50 per cent of their time on creative work, having to spend the rest of their time earning income from other sources to meet their basic needs.’

Tax law in Australia and New Zealand

New Zealand tax law permits some spreading or averaging of certain types of income which may be subject to peaks and troughs, including copyright income. If, for example, an author writes a novel over five years, and then licenses publication to a publisher, they will be able to spread the amount received over the current and previous two tax years, rather than experiencing a spike in taxable income in the year of receipt.

Australian legislation also allows spreading (Division 450 of the Income Tax Assessment Act 1997 (Cth), ITAA 1997) but employs a broader concept of assessable professional income and allows immediate setting-off of some losses. Assessable professional income for an income year is the sum of a taxpayer’s assessable income for that period derived from providing services relating to their activities as a special professional. A ‘special professional’ includes ‘the author of a literary, dramatic, musical or artistic work’ and ‘the inventor of an invention’.

The explanatory memorandum to the Taxation Laws Amendment Bill 1987 stated in relation to the forerunner of Division 405: ‘artist’ is defined as meaning the author of an artistic work. By referring to an ‘author of an artistic work’, the definition is intended to pick up the meaning of those terms as they are used in the Copyright Act 1968 (Cth). The adoption of the copyright conception of an artist raises the question whether resale royalties – or even the sale of physical artworks – fall within the ambit of Division 405. However, that could not have been intended and the provision should be interpreted so as to avoid such an outcome.

The absence from the text of the word ‘original’ – a critical copyright consideration – indicates that a broader concept of creation than that of copyright legislation may be covered by the income tax legislation. For example, a person who copies a substantial part of another work would not qualify as the author of an original copyright-protected work however creative their thinking and skilful their craftsmanship. Currently, unlike the United States, which employs a broad fair use principle, Australian and New Zealand copyright statutes do not recognise such transformative works as original artistic works in their own right. Furthermore, indigenous artworks, which may fail the copyright originality test, may qualify for income tax concessions. However, if the copyright understanding of artist (derived from artistic work) is strictly followed, creators of works of artistic craftsmanship would still not qualify unless they produce works that manifest artistic merit.

According to an Australian Taxation Office (ATO) ruling, ‘the term “art work(s)” is used to describe the product or services produced as a result of activities undertaken during the course of a “professional arts business”’. In fact, the ruling – no doubt wisely, since ‘art’ is notoriously difficult to identify – does not seek to define what ‘arts’ means in the phrase ‘professional arts business’ but rather what ‘business’ means. In other words, it considers how, for example, the common law principles for distinguishing a business from a hobby apply in the context of the arts. The ATO would most likely adopt a common sense, rather than a restrictive copyright, conception of artist as author.

Division 35 of the ITAA 1997 prevents individuals’ losses from non‑commercial business activities being offset against other assessable income in the year the loss is incurred; rather the loss is deferred. However, an exception applies to business activity that is a professional arts business (a business the taxpayer carries on ‘as the author of a literary, dramatic, musical or artistic work’) and the taxpayer’s assessable income for that year (except any net capital gain) from other sources that does not relate to that activity is less than AUD40,000. As noted above, most artists have to earn income outside their artistic practice.

Treatment in Quebec

No resale royalty right operates at provincial or federal levels in Canada, but Quebec provides a deduction of up to CAD60,000 for copyright income earned by professional artists. The legislation applies to self-employed artists who create works in the fields of visual arts, arts and crafts. A special deduction also applies to professional artists for contributions to a qualifying income-averaging annuity. ‘Professional artist’ is a person who

  • declares himself to be a professional artist;
  • produces works on his own behalf;
  • has works exhibited, produced, published, presented in public or marketed by a promoter; or
  • has been recognized by his peers as a professional artist by way of an honourable mention, an award, a prize, a scholarship, an appointment to an adjudication committee or an invitation to participate in a salon or by any other similar means.

An artist who is a professional member of a recognised association is presumed to be a professional artist. By contemplating an artist in the context of the institutional art world, the Quebecois legislation not only excludes copyright holders in mundane, commercial designs but specifically targets genuine artists for concessions.

Providing tax concessions to a professional elite is economically inefficient. Those visual artists who receive significant copyright income are already incentivised to produce by exclusive exploitation rights. The income tax system does not need to provide further benefits. Furthermore, because treatment of copyright-earning and other visual artists is not even-handed, a perverse incentive might exist for artists to produce popular and reproducible, rather than avant-garde, singular works. That incentive might be inherent in the market system, but income tax should not potentially exacerbate it.

Improving tax treatment of visual artistic practice

The Australian approach of extending the averaging concession to ‘special professionals’ is preferable to the narrow New Zealand approach. But Quebec’s definition of ‘professional artist’ is better still because it pinpoints genuine artists. I do not support concessions for copyright income but support the attempt by lawmakers to engage with the true nature of visual artistic practice, rather than importing flawed copyright concepts.


Journal article

Barrett, J 2022, ‘Dissonance between fact and law: The example of visual artistic practice and income tax concessions for peak copyright‘, Victoria University of Wellington Law Review, vol. 52, no. 4, pp. 689–708.

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