Bills Digest no. 45 2009–10
Tax Laws Amendment (Resale Royalty Right for Visual Artists) Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date introduced: 16 September 2009
House: House of Representatives
Portfolio: Treasury
Commencement: The formal
provisions commence on Royal Assent. Schedule 1 commences at the same
time as Part 2 of the proposed Resale Royalty Right for Visual Artists Act
2009.[1]
Links: The relevant links to the Bill, Explanatory Memorandum
and second reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills have been passed they can
be found at ComLaw, which is at http://www.comlaw.gov.au/.
Primarily, the Tax Laws Amendment (Resale
Royalty Right for Visual Artists) Bill 2009 (‘the Tax Bill’) amends three tax
Acts to ensure that the body appointed by the Arts Minister as the collecting
society for resale royalty right payments under the proposed Resale Royalty
Right for Visual Artists Act 2009 is not taxed on amounts it collects and
passes on to visual artists (or their estates), nor on interest paid to the
society in relation to these royalties.[2]
The Tax Bill also ensures that the collecting society is exempt from paying tax
on the first five per cent of its total income or $5 million in an income year
(whichever is the lesser amount).
The Tax Bill streamlines the income tax treatment of
payments made to or from the collecting society to bring them into line with
the income tax treatment of payments made to or by copyright collecting
societies. It also simplifies the tax law provisions that currently apply to
copyright collecting societies.
The Resale Royalty Right for Visual Artists Bill 2009 (‘the
substantive Bill’) was introduced by the Rudd Government on 27 November 2008. That
Bill establishes ‘the right of an artist to claim a share of the proceeds of
each successive resale of the original of a work’.[3]
The term ‘resale royalty right’ is defined in proposed section 6 of the
substantive Bill as ‘the right to receive resale royalty on the commercial
resale of an artwork’. The royalty may be paid to visual artists (or their
estates), provided certain residency and other tests are satisfied.[4]
It is not payable if the sale price is less than $1000 or such other amount as
may be prescribed by regulations.[5]
In the case of existing artwork, the royalty is not payable on the first
transfer of ownership that occurs after the commencement of the proposed Act.[6]
The resale royalty is set at 5 per cent of the sale price on the
commercial resale of an artwork.[7]
A body may apply to the Arts Minister to be the collecting
society for the royalty scheme.[8]
The Arts Minister must either refuse the application or appoint the body as the
collecting society for a period not exceeding five years. There can be only
one collecting society at any time. Among other requirements, the collecting
society must be a company limited by guarantee and be incorporated under the Corporations
Act 2001. All resale royalty right holders must be entitled to become members
of the body, and the body’s rules must prohibit the payment of dividends to its
members.[9]
The Minister may revoke the appointment if certain statutory criteria are met.[10]
In the last two months, there has been some mention of the
substantive Bill in the media but there has been no mention of the Tax Bill
itself. The press commentary on the substantive Bill has in part arisen in the
context of the merger of two leading houses in the Australian art auction
market—the purchase by Bonhams & Goodman of Sotherby’s Australia from its
international parent—and claims about the relevance and fragility of the
Australian art market in the global arena.[11]
The very people who will be eligible to hold royalty resale
rights (and thus receive royalties) under the proposed Resale Royalty Right
for Visual Artists Act 2009 are themselves ambivalent about the merits of
the proposed resale royalty scheme, even though similar schemes operate successfully
in other nations.[12]
For example, Wendy Whiteley, the widow of artist Brett Whiteley, said that in
theory the scheme is a good thing, but painter John R Walker said: ‘For just
about every artist [the legislation] is of dubious value, except possibly for
indigenous artists’. Walker said that when he sells an artwork , he gets
60 per cent of the sale price, and so if the five per cent resale royalty
causes ‘just one person to not buy one of his works, it would take the resale
royalty on a dozen paintings to make up for that lost sale’.[13]
Similarly, Helen Brack, the widow of painter John Brack, thinks the scheme will
make her family’s life more complicated. She already receives copyright
royalties and says that the resale royalty payments will be ‘just something
else you have to keep track of’.[14]
The resale royalty right scheme was part of the election
platform of the Australian Labor Party in 2007. The particular issue of the
streamlined income tax treatment of the royalty payments was contained in the Updated
Economic and Fiscal Outlook 2008–09, released by the Treasurer and the
Minister for Finance and Deregulation on 9 February 2009.[15]
At the time of writing, the Tax Bill has not been referred to
a committee. However, the substantive Bill was the subject of inquiry and
report by the House of Representatives Standing Committee on Climate Change,
Water, Environment and the Arts. Details of the inquiry, including the
committee’s report published in February 2009, are at http://www.aph.gov.au/house/committee/ccwea/resaleroyalty/report.htm,
viewed 14 October 2009. Subject to some refinements, such as the expansion of the
definitions in the Bill to include all commercial transactions of a broader range
of artwork than contained in the substantive Bill as originally introduced, the
committee recommended that the Bill should be passed.[16]
If the Tax Bill is not passed,
but assuming the substantive Bill is passed, the resale royalty collecting
society would be taxed on payments received and held on behalf of resale
royalty right holders under the trust tax rules in Division 6 of Part III of
the Income Tax Assessment Act 1936 (ITAA 1936).[17]
Resale royalty right holders will also be taxed on any payments they receive (as
personal income) to the extent tax has not already been assessed as payable by
the collecting society—although this event will occur even if the Tax Bill is
passed.
The Explanatory Memorandum for
the Tax Bill states that the revenue impact of the streamlined income tax
treatment of the resale royalty right scheme is ‘unquantifiable’.[18]
This statement accords with the notation in the Updated Economic and Fiscal
Outlook 2008–09 which states that ‘[t]he nature of the measure is such that
a reliable estimate cannot be provided’.[19]
Items 1 to 17 of Schedule 1 to the Bill amend
the Income Tax Assessment Act 1997 (ITAA 1997).
Items 1 and 2 amend section 10–5, which sets out a
list of provisions in the ITAA 1997. Item 1 inserts a sub-heading that
refers to ‘collecting societies’. That sub-heading is then expanded to include
not only payments of royalties by copyright collecting societies but also
payments by the resale royalty collecting society.[20] Item 2 makes a consequential amendment to remove the stand-alone reference
to ‘payments to members of copyright collecting societies’ that currently
exists in section 10–5 (and which, if not removed, would result in a duplicate
entry for copyright collecting societies in section 10–5).
Items 3 and 4 amend section 11–15 of the ITAA 1997,
which sets out a list of ordinary or statutory income which is exempt from
taxation only if it is derived by certain entities. Item 3 replaces the
existing reference to both the copyright and non-copyright income of copyright
collecting societies (and the applicable paragraphs in subsection 51–43(2))
with a more general reference to ‘copyright collecting societies’ and section
51–43. Item 4 inserts reference to ‘resale royalty colleting societies’
and proposed section 51–45.
Items 5–6 make amendments to existing sections 15–20
and 15–22 as a consequence of other amendments made by the Tax Bill.
Item 7 inserts proposed section 15–23 to set
out the tax treatment that will apply to a payment by the collecting society to
a royalty right holder. It makes it clear that the proposed section (and not Division 6 of Part III of the ITAA 1936) applies to any payment made to a
resale royalty right holder by the collecting society under proposed section 26
of the Resale Royalty Right for Visual Artists Act 2009.[21]
It also makes it clear that such a payment is to be included as part of the
royalty right holder’s assessable income, except to the extent that the
directors of the collecting society are or have been assessed, and are liable
to pay tax (as a trustee), under existing sections 98, 99 or 99A of the ITAA
1936.[22]
Item 8 repeals existing section 51–43 and replaces it
with two new provisions: proposed section 51–43 and proposed section 51–45. Proposed section 51–43 makes the income collected or derived by a
copyright collecting society exempt from income tax, and proposed section
51–45 makes the income collected or derived by a resale royalty collecting
society exempt from income tax. The two provisions are in virtually identical
terms—which, from the standpoint of predictability, is a good thing because the
income of the two different types of collecting societies should be taxed in
the same way.
Proposed sections 51–43 and 51–45 apply to the relevant
societies if Division 6 of Part III of the ITAA 1936 applies to the income
of the society (which, broadly speaking, applies if the collecting society is
holding the moneys on trust). Under the amendments, royalties and interest on
royalties collected or derived by the relevant society are exempt from tax, as
is any other amount relating to copyright or resale royalty rights (whichever
is relevant to the particular society whose income is being assessed) that are
derived by the society in an income year and are prescribed by the regulations
for the purposes of this exemption. Further, other ordinary and statutory
income derived by the society in an income year is also exempt from income tax
to the extent it does not exceed the lesser of:
- 5 per cent of the total of the ordinary and statutory income derived
by the society in the income year, and
- $5 million or such other amount as is
prescribed by the regulations.[23]
Item 10 repeals existing Division 410 and inserts a new
Division 410 in its place. The amendment extends the scope of the current division
to provide that both copyright collecting societies and the resale royalty
collecting society must give notice to any member of the society to whom the
society makes a payment.[24]
The notice must be given at the time of the payment and must be in the approved
form. No indication is given in the Tax Bill or the Explanatory Memorandum for
the Tax Bill as to the format or content of the approved form. While the lack
of prescription may allow for flexibility in changing the form and the matters
required to be notified, the situation is to be contrasted with existing
section 410–5, which provides that if a copyright collecting society makes a
payment to a member of the society, it must give the member a written notice
stating the following matters:
- the name of the society and the member; and
- the total amount of the payment; and
- the amount of the payment on which the directors of the
society are or have been assessed, and are liable to pay tax, under section 98,
99 or 99A of the Income Tax Assessment Act 1936 ; and
- the amount of the payment that is to be included in the
member’s assessable income under section 15–22 of this Act [the ITAA 1997].
Items 11 to 17 amend section 995–1 of the ITAA 1997,
which is the definitions section for that Act. Items 15, 16 and 17 respectively define the terms ‘resale royalty’, ‘resale royalty
collecting society’ and ‘resale royalty right’ by reference to the
meaning of those terms in the proposed Resale Royalty Right for Visual
Artists Act 2009. Items 13 and 14 repeal the definition of the
terms ‘copyright income’ and ‘non-copyright income’—it will not
be necessary to define these terms once revised section 41–43 is enacted (see item
8 above).
Item 18 replaces the phrase ‘copyright income, and
non-copyright income’ with the phrase ‘ordinary income, and statutory income’
in subsection 410–1(1) of the Income Tax (Transitional Provisions) Act 1997.
That section currently provides that a copyright collecting society to which
section 51–43 of the ITAA Act 1997 applies, may elect that, from 1 July 2004,
the section apply to all copyright income, and non-copyright income, collected
or derived by the society on or after 1 July 2004. The amendment in item 18 needs to be made as a consequence of the change in the terminology used to
refer to income types in revised section 51–43 (item 8 above).
Item 19 repeals existing section 288–75 in Schedule 1
to the Taxation Administration Act 1953 (TAA 1953) and replaces it with
a new provision. Existing section 288–75 sets out the administrative penalty that
must be paid by a copyright collecting society if it fails to give notice as
required by section 410–5 of the ITAA 1997. The proposed revision expands the
provision to provide that the resale royalty collecting society is liable to
the same administrative penalty as a copyright collecting society. The penalty
contained in the revised provision is the same for both types of society, and
is the same as the penalty contained in the existing provision—20 penalty units
(or $2200).[25]
Ordinarily, under subsection 4B(3) of the Crimes Act 1914,
if the copyright collecting society or resale royalty collecting society is a
corporation, a court may, ‘if the contrary intention does not appear and the
court thinks fit’, increase the penalty by a maximum of five times the amount
of the maximum penalty that a court could impose on a natural person convicted
of the same offence. In the case of section 288–75 of the TAA 1953, the
corporation could be liable to a penalty of up to 100 penalty units (or $11
000).
It is, however, not clear if subsection 4B(3) of the Crimes
Act 1914 applies in the case of the resale royalty collecting society. A body
must be a company limited by guarantee and be incorporated under the Corporations
Act 2001 in order to be eligible for appointment as the resale royalty
collecting society.[26]
The collecting society cannot therefore be a natural person, but it makes no
sense for the TAA to specify a penalty that applies to anything other than a
body corporate. To avoid any doubt, it may be prudent for this issue to be
addressed expressly in the Tax Bill.
Item 20 provides that the amendments made by Schedule
1 to the Tax Bill apply in relation to the 2009–10 income year and later income
years.
Members, Senators and
Parliamentary staff can obtain further information from the Parliamentary Library
on (02) 6277 2795.
Morag Donaldson
22 October 2009
Bills Digest Service
Parliamentary Library
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