Australian Business Number (ABN) and Goods and Services Tax (GST)
The Goods and Services Tax (GST) was introduced on 1 July 2000. It is a tax of 10% on the sales or supplies of most goods, services, or other items sold or consumed in Australia.
The GST system works by GST being paid at each step in the supply chain. GST registered individuals or organisations must include GST in the price of goods or services they supply or sell, they then claim back the GST included in the price of their purchases from the Australian Taxation Office (ATO). The cost of GST is ultimately borne by the end consumer who is not GST registered.
An Australian Business Number (ABN) is a number which is used by businesses in all dealings with the ATO. In order to register for GST, you must have an ABN.
A business with a before-tax income of $75,000 or more must have an ABN and must be registered for GST. However, you can choose to obtain an ABN and not register for GST if your business income is below $75,000 per year.
A tax invoice is a document which shows the price of a sale, indicating whether it includes GST, and may show the amount of GST. It must show other information, including the ABN of the supplier. A tax invoice is required for all purchases over $75.00 in order to claim a tax credit.
Depending on the level of income from their practice, artists and arts workers may:
register for an ABN and GST (optional for income below $75,000 per year, compulsory for income above $75,000)
register for an ABN, but not register for GST (income below $75,000 per year)
register for neither an ABN nor GST (income below $75,000 per year)
ABN and GST Registered
ABN and GST registration is compulsory if an artist receives income from their work totalling $75,000 or more per year.
Artists who are registered for the GST must include a GST amount in the price of any goods or services they provide. If they are providing works to a gallery or retail outlet, the sale price must include a GST component, which the artist collects (or the gallery/retail outlet collects on the artist’s behalf if the work is provided on consignment) and forwards to the ATO.
GST registered artist also claim tax credits on the GST component of the cost of materials, equipment and other items related to the production and sale of their work, including the GST component of commission fees charged by the gallery.
The ATO website provides more detailed explanations and examples of how the GST system works, as well as explaining what constitutes a taxable sale and the record-keeping and reporting requirements for anyone who is GST registered.
Registered for an ABN, not GST
Some artists and arts workers may decide to get an ABN but not register for GST if their arts practice income is below $75,000 per annum. Having an ABN is useful because the artist is considered to be ‘in business’ and claim tax deductions on business related purchases. They would not charge GST on the goods and services they provide.
The decision to not register for GST may be related to:
the level of income from their arts practice
the level of expenses related to their arts practice
the extra administrative work related to being GST registered
As these artists must absorb additional GST costs, they may earn less from each sale than those who are registered for GST.
No ABN or GST Registration
Artists who do not hold an ABN and do not register for GST may have more difficulty in being recognised as being ‘in business’ by the ATO. The artist or arts worker would not be able to claim tax deductions for expenses related to their arts practice.
This may also have implications for artists who want to offset their art making expenses against income earned from other sources (such as teaching, administration etc.) under non-commercial losses tax legislation.
It will also mean that businesses making payments to the artist will ask the artist to complete a Statement by a Supplier before any payment is made. This standard form provides a number of options as to why an artist should not have 46.5% PAYG tax withheld.
First Nations Artists in Remote Communities
First Nations artists are not required to quote an ABN if that artist works or lives in an isolated area, known as Special or Ordinary Zone A geographic regions. Also, tax will not be withheld from payments even though the artist hasn’t quoted an ABN.
Therefore, in these circumstances, if you:
are the First Nations artist, you don't need to quote an ABN and will not have tax withheld
run a business and pay a First Nations artist, you will not require an ABN to be quoted and will not withhold tax
For more information, see the ATO's Your Business Income and Taxes resource and the NAVA Guide on Aboriginal and Torres Strait Islander Artists and Income Tax by Brian Tucker.
What is a 'Professional' Artist?
Income Tax: Carrying on Business as a Professional Artist
In this 2005 Taxation Ruling, the ATO provides clearer guidelines as to who can be regarded as a professional artist rather than a hobbyist in order to claim their art business expenses against all forms of income.
The Ruling is based on standard industry practices not only for visual artists, craft practitioners and designers, but all Australian creators including performers, writers, composers and choreographers. The ATO recognises that although most professional artists have the intention to make a profit from their art practice, often this success is slow to come or erratic over the course of their careers.
Activities that may indicate that an artist is in business include:
seeking to build a reputation as a professional artist
making attempts to bring their work to the public or relevant market
offering work for sale, or selling artwork
offering expert services through commission or consultancy
carrying out the work in a businesslike manner (e.g. keeping financial records, having formal written contracts or agreements, written business plan)
renting or owning space dedicated for art purpose
building industry contacts
being eligible to apply for government grants
seeking philanthropic patronage or sponsorship
selected for public exhibition, awards, prizes
securing residencies or other professional engagements
having work acquired for public or private collections
securing work or consultancies on the basis of their professional expertise
undertaking research into the proposed art business and/or consulting art or business experts prior to or during the activity (e.g. agent, manager, legal or financial adviser)
being a member of a professional association or union (like NAVA)
The ATO will also look for:
whether the artist is trying to make a profit
repetition and regularity of work as an artist
whether the activities are of the same kind and carried on in the manner characteristic of this industry
appropriate qualifications (or equivalent experience)
peer recognition (e.g. opinion as an artist sought in public conferences/seminars, artwork used as an example for teaching purposes)
public recognition (e.g. work represented in public collections, coverage in the media)
whether the artist was appointed to a position contingent on their status as an artist
For more information, see the full Australian Taxation Office's Taxation Ruling.
Income and Deductions
The income derived by artists and arts workers who are in business or are employed is all assessable income for income tax purposes.
This can include:
sale of work and commissions
grants, prizes, honorariums or sponsorships
artist fees and fees for production of work
paid employment or freelance consultancy services provided
in-kind support such as free accommodation or studio space, equipment or materials, or other assistance
If an artist or arts worker is receiving income through their ABN, income tax must be paid to the ATO in instalments under the Pay As You Go (PAYG) system.
Artists and arts workers receiving social security payments should investigate how the receipt of income through their ABN will affect their social security payments.
Artists and arts workers with an ABN can claim tax deductions for expenses related to generating an income.
This can include:
phone and internet
travel (including some living expenses while travelling)
When intending to claim a deduction all invoices, receipts, logbooks and documentation should be kept as evidence to present on completing a tax return.
Sometimes artists are asked to donate works to a good cause. In these situations, artists should be aware that they can only claim the cost of materials, not the full value of the work, as a deduction. The exception to this rule is where the work is donated to a public collecting institution under the Cultural Gifts Program. For more information, see the Australian Government Office for the Arts Cultural Gifts Program.
If your arts business makes a loss during a financial year this loss can be either:
offset against other income such as employment income
deferred to future financial year where the business does make a profit
In order to be eligible to offset or defer the loss the business must meet the first criteria and at least one of the other four:
income is less than $250,000
assessable business income is at least $20,000
in three out of past five years the business has made a tax profit (i.e. assessable income has been more than deductions)
the business uses at least $500,000 of real property (studio, workshop, office but not private dwelling)
the value of other assets used by the business is $100,000 or more (equipment, stock, trademarks, patents, copyrights)
If you are intending to offset your losses against another form of income that income must be less than $40,000.
For more information, see the ATO's Non-Commercial Losses resource.
Special professionals, including artists and production associates, are able to average the taxable income from their arts business over five years. This means that the income is taxed as though it had been earned over five years, acknowledging that artists and arts workers have fluctuating income year to year. To be eligible to average your arts business income, you must elect to average your income in the first year that your taxable income from your arts business is more than $2,500.
For more information, see the ATO's Income Averaging for Special Professionals resource.
Businesses with a turnover less than $50,000,000 are eligible for instant asset write off for assets. Businesses may be able to claim a tax deduction in the year or first use or installation of the asset rather than depreciating the asset over a period of years.
This not only benefits artists and arts workers purchasing equipment for their business but also businesses considering purchasing artworks for business use. As there are some complex rules, talking with a professional tax accountant would be advised.
For more information, see the ATO's Depreciation and Capital Expenses and Allowances resource.
Responsibilities of Employers
Artists and arts workers can be hired as employees or contractors.
For more information, see Contractors vs Employees.
Hiring workers as employees entails obligations relating to taxation. These apply to anyone hiring employees, including sole traders and artists subcontracting work.
Hiring employees may create a payroll tax obligation. Payroll tax is a state and territory tax on wages you pay, and each state has its own rules.
For more information, see the ATO's Payroll Tax resource.
You will also need to collect pay-as-you-go (PAYG) amounts and report and pay these to the ATO.
For more information, see the ATO's PAYG Withholding resource.
If you offer employees any fringe benefits, such as free tickets, social functions or allowing a work car to be used for private purposes, you may need to pay fringe benefits tax.
For more information, see the ATO's Fringe Benefits Tax resource.
Employees are also entitled to superannuation, see Superannuation.