By , on 07-Dec-2011

It may not be well-known but currently no resale royalties will be payable on the sale of one of the most traded artists in the Australian art market, Sidney Nolan.

So far in this year, 158 works by Sidney Nolan have been sold for a total of $3.3 million, the highest price being

Nolan, one of the “top 5 artists” identified in the government’s 2004 discussion paper on the viability of the then-proposed resale royalty scheme (along with John Olsen, Norman Lindsay, Brett Whiteley and Russell Drysdale), left his estate to his widow, a British citizen living permanently outside of Australia.

The resale royalty scheme requires estates of deceased artists to be managed by individuals or entities who satisfy what is known as the residency test.

Passing the residency test requires one of three elements to exist: Australian citizenship, permanent residency of Australia or being “a national or citizen of a country prescribed as a reciprocating country”. 

The last element would be satisfied if Australia and the United Kingdom had a reciprocal agreement in relation to their respective resale royalty schemes, however this has yet to occur. In fact no reciprocal agreements have yet been put in place with other countries with similar resale royalty schemes.

A clue to why this has not happened may be found in the information sheet "Australia's New Resale Royalty Scheme: How will it work?" put out by the Department of the Arts in November 2009. Under the subheading "International Reciprocity" it says "the collecting society will be responsible for establishing reciprocal arrangements..."

The collecting agency was not known at this point in time. Copyright Agency Limited (CAL) was appointed to this role several months later and given responsibility over establishing the entire resale royalty scheme - including the tricky international agreements. What is not known is whether CAL has received any assistance from the government in this regard, particularly from the Department of Foreign Affairs.

In any event, regardless of when the reciprocal agreement is made with the United Kingdom, there may be a case for the permanent exemption from resale royalty for all future sales of Sidney Nolan artworks.

The key is the residency test. Section 12 of the Act states that for resale royalty to be payable on commercial resales a deceased artist must have satisfied the residency test “immediately before his death”.

Looking at the residency test in relation to Nolan and with the knowledge that he became a British citizen (and well before his death) it would be hard to see how the two other elements would be satisfied – he was not a permanent resident of Australia and at the time of his passing there was no reciprocal agreement in place. In fact neither country had resale royalty schemes at this time.

In the current year Sidney Nolan is the third most valuable traded artist on the Australian market with over 150 resales worth close to $3.4 million. Should all future sales of Nolan artworks be permanently exempt from resale royalties, it could be argued that this will create a competitive advantage over comparable artists.

There are bound to be more such anomalies in the resale royalty scheme, however a suggestion for CAL would be to publicise important information such as the Nolan exemption to aid market transparency. CAL could also compile a list of exempted artists which could be displayed on their website.   

Perhaps a private ruling/general advice system could be implemented (similar to ATO interpretations of taxation law) where there are genuine grounds to believe resale royalty may not be payable due to residency or other issues. The alternative might be costly litigation to resolve such disputes.

Unfortunately although eligible Nolan resales may be exempt from resale royalties, they will still need to be reported to CAL alongside a nil payment – just like all other eligible resales with no consideration. Surely the government or CAL could find a way to eliminate this unnecessary administration from the resale royalty scheme.