As was reported on the AASD site on 12 November, the commencement date has yet to be fixed but resale royalties will now become operational within the next 6 months. Thankfully common sense prevailed in The Senate on Thursday and the final reading did not make the scheme retrospective to 1 July 2009.
The next step in the process is for the Federal Government to call for tenders to establish the Collecting Society, which will administer the collection and distribution of resale royalties. Viscopy is almost certainly the frontrunner here, particularly in light of their charter being amended at their recent Annual General Meeting to becoming a royalty collecting body.
So how will this all work, who will be responsible to pay these resale royalties and what are the penalties for not complying with the legislation? Below is a brief summary of the most relevant sections.
The definition of artwork has been expanded to include fine art jewellery, digital art, installations and artist’s books.
Art market professionals are defined as auctioneers, art gallery owners, art dealers and it appears that individuals with large artwork collections may be classified in the category of “a person otherwise involved in the business of dealing with artworks”. This is because private sales between individuals or entities not otherwise in the art market are not caught by the legislation.
Commercial resales are defined as those transfers of ownership of artworks that are not the first transfers after the commencement date and are not otherwise excluded. In the explanatory memo to the legislation the following example is given:
“On a trip to Arnhem Land in September 2010, after this Bill comes into effect, a gallery owner buys a painting outright from an Aboriginal artist for $10,000. The gallery owner puts the painting up for sale at an exhibition in December 2010, where it is purchased by an investor for $16,000. Even though this is the first resale of the artwork, it triggers a resale royalty payment to the artist of $800 as the gallery owner had acquired the work following the introduction of the resale royalty right”.
Therefore the resale royalties are triggered on the first resale post the commencement date not the second, as had been commonly understood. This places Aboriginal art galleries at a great disadvantage because they typically purchase their works through community art centres rather than on consignment – ironically to preserve the integrity of the market.
What is also not widely understood is that this principle effectively makes the resale royalty a death tax for inherited artworks.
Threshold and rate of payment remain as before – a minimum sale of $1,000 including GST but not buyer’s premium and a flat rate of 5% with no maximum cap. The royalty is payable 70 calender years following the death of the artist. That is, if an artist died on 3 January 1940 resale royalties would be liable to his or her estate until 31 December 2010.
Residency of the artist is defined as being an Australian citizen, a permanent resident of Australia or a citizen of a country with reciprocal rights at a particular time. This is going to be an area of great conflict between art market professionals and the Collecting Society concerning the residency of artists prior to their arrival to or after their departure from Australia. Richard Larter is just one artist whose situation will require clarification.
Liability to pay resale royalties arises at the time of the commercial resale of the artwork and is jointly a responsibility shared by both the art market professional and the vendor. Clearly this will mean auction houses will have to pay the royalty and deduct the charge to their vendor rather than risk the vendor not paying. Presumably the actual payment to the Collecting Society would then occur on standard commercial terms, however it is clear that this will add quite an administrative burden to the auction houses.
Penalties for failure to pay resale royalties could be as much as $22,000 for an individual and $110,000 for a corporation for failing to comply with a notice from the Collecting Body. Bear in mind that an art market professional could be deemed to be an individual with a large artwork collection under the legislation.
Arts bodies have welcomed the legislation but it remains to be seen how much benefit emerging artists will receive. The Collecting Society will not pass on the entire 5% royalty collected from the art market but will deduct a fee based on their services before paying the artist. In the case of deceased artists or where artists cannot be located the Collecting Society will still receive a fee regardless and the monies paid will either be consolidated into their revenue or repaid to the vendor within a period of 6 years.
It is also obvious that in many cases it simply won’t be in the interests of the heirs of long-deceased artists to reactivate their antecedents affairs. Assuming that the average annual sales of the deceased artist was $20,000 and that the Collecting Society charges a service fee of $300 each year to distribute the resale royalties the artist estate would net an average $700. This money has to be banked to a trust bank account (which has to be established), a tax return has to be prepared (including applying for a tax file number) and minutes prepared to distribute the funds to the beneficiaries (of which there may be quite a few). It doesn’t take much figuring to see that in such a case the monies received by the heirs of deceased artists will barely compensate them for all this bother, bearing also that there is no ability to waive rights under the legislation.
The Federal Government has allocated $1.5 million to establish the resale royalty scheme and this funding will now commence in 2010. Time will only tell if the stated aims of providing greater equity for artists incomes and more transparency to the art market will come to pass. In the immediate term now that the legislation is almost law expect some reaction from art market professionals who will receive no compensation to enable this scheme to operate as they discover the impact on their operations.
