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
© Commonwealth of Australia
This work is copyright. Except to the extent of uses permitted
by the Copyright Act 1968, no person may reproduce or transmit any
part of this work by any process without the prior written consent
of the Parliamentary Librarian. This requirement does not apply to
members of the Parliament of Australia acting in the course of
their official duties.
This work has been prepared to support the work of the Australian
Parliament using information available at the time of production.
The views expressed do not reflect an official position of the
Parliamentary Library, nor do they constitute professional legal
opinion.
Feedback is welcome and may be provided to: web.library@aph.gov.au. Any
concerns or complaints should be directed to the Parliamentary
Librarian. Parliamentary Library staff are available to discuss the
contents of publications with Senators and Members and their staff.
To access this service, clients may contact the author or the
Library’s Central Entry Point for referral.
Back to top