2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (RESALE ROYALTY RIGHT FOR VISUAL
ARTISTS) BILL 2009
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact....................................................... 3
Chapter 1
Resale royalty right for visual artists ............................. 5
Index......................................................................................................13
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation
Definition
ITAA 1936
Income Tax Assessment Act 1936
ITAA 1997
Income Tax Assessment Act 1997
1
General outline and financial impact
Resale royalty right for visual artists
This Bill amends the Income Tax Assessment Act 1997 to provide a
streamlined tax treatment for payments made in relation to resale royalty
rights for visual artists. This Bill also makes several minor amendments
to simplify the tax treatment for payments made by copyright collecting
societies.
Date of effect: These amendments apply to the 2009-10 income year and
later income years.
Proposal announced: These amendments were included in the
Updated Economic and Fiscal Outlook 2008-09, released by the Treasurer
and the Minister for Finance and Deregulation on 9 February 2009.
Financial impact: The revenue impact of this measure is unquantifiable.
Compliance cost impact: Low.
3
Chapter 1
Resale royalty right for visual artists
Outline of chapter
1.1
This Bill amends the Income Tax Assessment Act 1997
(ITAA 1997) to provide a streamlined tax treatment for payments made in
relation to the resale royalty right for visual artists. This Bill also makes
several minor amendments to simplify the tax treatment for payments
made by copyright collecting societies.
Context of amendments
1.2
The Resale Royalty Right for Visual Artists Bill 2008
establishes a resale royalty right for visual artists and provides an
accompanying statutory scheme.
1.3
The resale royalty right entitles eligible visual artists to a royalty
payment on the sale price of any commercial resale of their original works
of art over $1,000 for works acquired after the legislation takes effect.
This allows visual artists to share in the commercialisation of their work
in the secondary art market. The resale royalty payable is 5 per cent of the
sale price.
1.4
The responsible Minister may appoint a body as the resale
royalty collecting society. The collecting society is responsible for
collecting resale royalty payments and distributing these amounts (minus
an administration fee) to the respective resale royalty right holders.
1.5
The tax law currently provides for a streamlined approach to
payments held by copyright collecting societies. In most circumstances
this approach does not tax copyright payments in the hands of the
collecting society. The final recipient is taxed on the payments when
received.
1.6
These amendments extend analogous treatment to the resale
royalty collecting society. They apply to resale royalty payments in place
of the trust tax rules in Division 6 of Part III of the Income Tax
Assessment Act 1936 (ITAA 1936). This ensures that the resale royalty
collecting society is not taxed on payments received and held on behalf of
the resale royalty right holder.
5
Tax Laws Amendment (Resale Royalty Right for Visual Artists) Bill 2009
Summary of new law
1.7
The amendments ensure that the resale royalty collecting society
is not taxed on amounts it collects on behalf of resale royalty right owners
and holds pending allocation to them.
1.8
Nor is the resale royalty right collecting society taxed on other
income it derives, provided that the amount of this other income falls
within certain limits.
1.9
Amounts received by resale royalty right holders from the resale
royalty collecting society are included in their assessable income, to the
extent these amounts are not subject to income tax in the hands of the
collecting society.
Comparison of key features of new law and current law
6
New law
Current law
Resale royalties, and interest on
resale royalties, collected or derived
by the resale royalty collecting
society are exempt from income tax
in the hands of the society. Payments
to resale royalty right holders are
taxable when received.
The income of a resale royalty
collecting society is subject to the
trust tax rules in Division 6 of Part III
of the ITAA 1936.
Other income derived by the resale
royalty collecting society not directly
relating to resale royalty rights is
exempt from income tax, to the extent
that such income does not exceed
either $5 million or 5 per cent of its
total income in the income year.
Income unrelated to resale royalty
rights is ordinarily treated as
assessable income in the hands of the
society.
When making a resale royalty
payment to a resale royalty right
holder, the resale royalty collecting
society must notify the recipient. If
this does not occur, the collecting
society is liable to an administrative
penalty of 20 penalty units (currently
$2,200).
No equivalent.
Resale royalty right for visual artists
Detailed explanation of new law
Streamlined tax treatment for resale royalty payments
1.10
The Resale Royalty Right for Visual Artists Bill 2008
establishes a resale royalty right for visual artists. The resale royalty right
entitles eligible visual artists to a royalty payment on the sale price of any
commercial resale of their original works of art over $1,000 for works
acquired after the commencement of the resale royalty right scheme. This
allows visual artists to share in the commercialisation of their work in the
secondary art market. The resale royalty payable is 5 per cent of the sale
price.
1.11
The responsible Minister may appoint a body as the resale
royalty collecting society. The collecting society is responsible for
collecting resale royalty payments and distributing these amounts (minus
an administration fee) to the respective resale royalty right holders.
Resale royalty collecting society
1.12
The amendments apply a streamlined tax treatment to resale
royalty payments received by resale royalty right holders from a resale
royalty collecting society in place of the trust taxation rules in Division 6
of Part III of the ITAA 1936. [Schedule 1, item 8, subsection 51-45(1)]
1.13
This is achieved by exempting from income tax in the hands of
the society resale royalties, and interest on resale royalties, collected or
derived by the resale royalty collecting society. [Schedule 1, item 8,
paragraph 51-45(2)(a)]
1.14
The resale royalty collecting society may derive other income
not directly relating to resale royalty rights. Such income is also made
exempt from income tax in the hands of the society, to the extent that it
does not exceed either $5 million or 5 per cent of its total income in the
income year. This income could comprise, for example, consulting fees,
fees received for the provision of administrative services and grant
income. [Schedule 1, item 8, paragraph 51-45(2)(c)]
1.15
The amendments also allow for regulations to make exempt
from income tax additional amounts of income derived by the resale
royalty collecting society. [Schedule 1, item 8, paragraph 51-45(2)(b)]
1.16
The body appointed to be the resale royalty collecting society
may also be a copyright collecting society, as defined by section 995-1 of
the ITAA 1997. [Schedule 1, item 11]
7
Tax Laws Amendment (Resale Royalty Right for Visual Artists) Bill 2009
Example 1.1: Resale royalty collecting society is also a copyright
collecting society
CollectTrust is the body appointed by the Minister for the Arts as the
resale royalty collecting society. It is also a copyright collecting
society as defined by section 995-1 of the ITAA 1997. CollectTrust’s
2009-10 income is $1.6 million, comprising:
•
$1 million in royalties, interest on royalties and other amounts
relating to copyright as defined by paragraph 51-43(2)(b);
•
$500,000 in resale royalties, interest on resale royalties and
other amounts relating to resale royalties as defined by
paragraph 51-45(2)(b); and
•
$100,000 in other income, including from government grants.
The first two amounts are made exempt from income tax by
paragraphs 51-43(2)(a) and (b), and paragraphs 51-45(2)(a) and (b)
respectively.
CollectTrust’s other income is also exempt from income tax, to the
extent it does not exceed the lesser of 5 per cent of its total ordinary
and statutory income and $5 million. In this case $80,000 (5 per cent
of $1.6 million) is exempt from income tax. The remaining $20,000
constitutes CollectTrust’s taxable income for 2009-10.
Resale royalty right holder
1.17
When an artist (or any other owner of a resale royalty right)
receives a resale royalty payment from the collecting society, the amount
of this payment will generally be included in their assessable income.
1.18
However if, for any reason, any part of this amount is or has
been taxable in the hands of the collecting society, the amount to be
included in the artist’s assessable income is reduced to reflect this.
[Schedule 1, item 7, section 15-23]
1.19
This treatment is analogous to the tax treatment afforded to
payments made to members of copyright collecting societies.
Example 1.2: Streamlined tax treatment for resale royalty right
amounts
David produces an artwork which is resold commercially, triggering a
resale royalty under the Resale Royalty Right for Visual Artists
Bill 2008. The resale price of the artwork is $20,000, so the resale
royalty amount is 5 per cent of this, $1,000.
8
Resale royalty right for visual artists
The reseller of the artwork pays the $1,000 to the resale royalty
collecting society. It takes the collecting society several months to
contact David, who has been travelling overseas. The collecting
society then makes a payment to David, adjusted for interest and
administration costs.
The $1,000 resale royalty amount received by the collecting society,
along with any interest earned in the period prior to making a payment
to David is exempt from income tax. The payment received by David
is included in his assessable income in the income year he receives it.
Notice requirements
1.20
The existing provisions requiring a copyright collecting society
to give notice when it makes a payment to a member are generalised to
include the resale royalty collecting society. [Schedule 1, item 10]
1.21
The resale royalty collecting society must notify the resale
royalty right holder whenever it makes a resale royalty payment to them.
[Schedule 1, item 10, subsection 410-50(1)]
1.22
This notice must be given at the time of the payment and must
be in the approved form, as determined by the Commissioner of Taxation.
[Schedule 1, item 10, subsections 410-50(2) and (3)]
1.23
If these requirements are not met, the resale royalty collecting
society is liable to an administrative penalty of 20 penalty units.
[Schedule 1, item 19]
Copyright collecting societies amendments
1.24
The tax law currently provides that copyright income and a
limited amount of non-copyright income is exempt from income tax when
collected or derived by a copyright collecting society.
1.25
Copyright income and non-copyright income are currently
defined terms in section 995-1 of the ITAA 1997. However, these
definitions are not necessary to achieve the desired outcome.
Accordingly, the amendments repeal these definitions. This is consistent
with the general policy of removing unnecessary definitions, whenever
possible, to reduce the complexity of the tax law. [Schedule 1, items 13 and
14]
1.26
The treatment of income collected or derived by a copyright
collecting society is governed by section 51-43 of the ITAA 1997. The
amendments rewrite this section, without altering its effect, by replacing
the references to copyright income and non-copyright income with more
general terms. [Schedule 1, item 8, section 51-43]
9
Tax Laws Amendment (Resale Royalty Right for Visual Artists) Bill 2009
1.27
Specifically, the amendments maintain the existing exemption
from income tax for royalties, interest on royalties and other amounts
relating to copyright prescribed by regulation that are collected or derived
by the copyright collecting society. [Schedule 1, item 8, paragraphs 51-43(2)(a)
and (b)]
1.28
The amendments also exempt from income tax other ordinary
and statutory income, unrelated to copyright, derived by the copyright
collecting society, to the extent that such income does not exceed either
$5 million or 5 per cent of its total income in the income year. [Schedule 1,
item 8, paragraph 51-43(2)(c)]
Application and transitional provisions
1.29
The measure applies in relation to the 2009-10 and later income
years. [Schedule 1, item 20]
1.30
A transitional amendment ensures that existing regulations
which further define copyright income as it is collected or derived by a
copyright collecting society continue to operate, notwithstanding the
removal of the definition of non-copyright income. [Schedule 1, item 9]
Consequential amendments
1.31
‘Resale royalty’, ‘resale royalty collecting society’ and ‘resale
royalty right’ are added as defined terms in subsection 995-1(1) of the
ITAA 1997. Each term has the meaning given to it by the Resale Royalty
Right for Visual Artists Bill 2008. [Schedule 1, items 15 to 17]
1.32
Section 10-5 of the ITAA 1997 includes a list of provisions
about assessable income. The reference to ‘payments to members of
copyright collecting societies’ is replaced by the broader term ‘collecting
societies’. References to the provisions dealing with payments of
royalties by copyright collecting societies and by the resale royalty
collecting society are included as sub-items under this new item.
[Schedule 1, items 1 and 2]
1.33
Section 11-15 of the ITAA 1997 includes a list of those
provisions dealing with the exemption of income if it is derived by certain
entities. The reference to copyright collecting societies is amended to
reflect the removal of the concept of non-copyright income, and a
cross-reference to the resale royalty collecting society provisions is added
to this list. [Schedule 1, items 3 and 4]
10
Resale royalty right for visual artists
1.34
A taxpayer’s assessable income ordinarily includes any amounts
received as a royalty (section 15-20 of the ITAA 1997). This section is
amended to exclude resale royalty payments, to clarify that these
payments are instead subject to the new dedicated provisions. [Schedule 1,
item 5]
1.35
The definition of ‘copyright collecting society’ in
subsection 995-1(1) of the ITAA 1997 is amended to replace the reference
to copyright income with the more general ‘income of a kind mentioned in
paragraph 51-43(2)(a) or (b)’ of the ITAA 1997. [Schedule 1, item 12]
1.36
The reference to ‘copyright, and non-copyright’ income in
subsection 410-1(1) of the Income Tax (Transitional Provisions) Act 1997
is replaced by ‘ordinary income, and statutory income’. [Schedule 1, item 18]
11
Index
Schedule 1: Resale royalty right for visual artists
Bill reference
Paragraph number
Items 1 and 2
1.32
Items 3 and 4
1.33
Item 5
1.34
Item 7, section 15-23
1.18
Item 8, section 51-43
1.26
Item 8, paragraphs 51-43(2)(a) and (b)
1.27
Item 8, paragraph 51-43(2)(c)
1.28
Item 8, subsection 51-45(1)
1.12
Item 8, paragraph 51-45(2)(a)
1.13
Item 8, paragraph 51-45(2)(b)
1.15
Item 8, paragraph 51-45(2)(c)
1.14
Item 9
1.30
Item 10
1.20
Item 10, subsection 410-50(1)
1.21
Item 10, subsections 410-50(2) and (3)
1.22
Item 11
1.16
Item 12
1.35
Items 13 and 14
1.25
Items 15 to 17
1.31
Item 18
1.36
Item 19
1.23
13
15