I recently Googled to see what was out there on the subject, and was shocked at what I found. There seemed to be a lot of information, but many of the facts are so often lost in the stories told.
Lets dispell a myth first: there is no dollar threshold that constitutes being in business as an artist.
(e.g at $5,999 its a hobby and at $6,000 you are conducting a business)
So how do you determine that you are conducting a business?
The following indicators must be considered when determining whether you are carrying on a business;
- Whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;
An amatuer will undertake their activities for personal pleasure, a professional on the other hand will use their abilities towards a commercail end.
- Whether the artist has more than just an intention to engage in business;
If it is your intention to carry on a business, do the following apply?
Regular activity, systematic, organised, business like approach to the activity, attempts to bring the art work or services to the public, actual sales of art work or services to the public and so on.
- Whether the artist has a purpose of profit as well as a prospect of profit from the activity;
Is your motive to make a profit? Are you marketing your art, creating industry contacts, offering and selling your work to the public, doing commissions and consulting, publically exhibiting your art, entering competitions and building your reputation?
Even if you are doing all of these and no profit is made, that doesn’t exclude your motives.
- Whether there is repetition and regularity of the activity;
As the artist are you producing regular work and participating in regular activities to promote and enhance your standing as an artist?
- Whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;
Are you carrying on your business like a recognised industry peer, do you have qualifications, recieve public recognition, becoming eligible for Government Grants, been offered positions on a board or as a teacher?
- Whether the activity is planned, organised and carried on in a business like manner such that it is directed at making a profit;
As an artist, do you keep good records of income and expenses, use contracts to record agreements, use business professionals, have a business plan, rent exibition space?
- The size, scale and permanency of the activity.
The activity must be beyond your personal needs and the volume of output must be sufficient enough to provide your work to the relevant markets.
So if you are in the business of being an artist you would be attempting to build public recognition, and awareness of your work, find suitable markets to sell your work so you can gain a profit from your abilities.
On the other hand if you are creating art for your pleasure and the sales that are made are to family and friends. The costs involved far outweight any income received and there is no intent to make a profit, then your creative work is considered a hobby.
I have attached a link to taxation ruling TR 2005/1, it contains about 45 pages of reading, with examples and cases.