Artists Exemption & Tax Planning for Artists
Budget 2011 saw another significant change to the tax exemption for artists (the “artists’ exemption”). The artists’ exemption, originally introduced by Charlie Haughey in 1969, provided that income derived from the sale of ‘qualifying works’ by an artist would not be taxable.
Qualifying works are ‘original and creative’ works that have ‘cultural or artistic merit.’ Such works may include, but are not restricted to a:
- book or other writing
- play
- musical composition
- painting or other like picture
- sculpture
The exemption previously applied to all income earned by an artist from qualifying works. Recent Budgets have sought to realign public finances, and as part of this policy, the use of various tax exemptions, including the artists’ tax exemption, has been significantly curtailed.
Budget 2011, as brought before the Oireachtas on 7 December 2010, has continued this trend and has all but abolished the use of the exemption. With effect from 1 January 2011, the exemption will only apply to income earned up to a limit of 40,000. All income in excess of this threshold can suffer taxation at up to 52% (income tax + PRSI + the newly introduced Universal Social Charge).
As successive Budgets have effected such a dramatic fall in after tax earnings for Irish artists, there is a greater need than ever before for artists to structure their affairs in order to reduce their exposure to punitive personal tax rates.
Incorporating a sole trade can realise a number of taxation benefits and should be considered by artists that are currently operating under a sole trade structure.
If managed appropriately, incorporation can yield significant cash flow benefits and the opportunity to:
• Utilise the 12.5% corporate tax rate.
• Realise earnings tax efficiently through company funded pension payments and appropriately timed salary payments.
• Limit your liability under the veil of incorporation.
• Facilitate succession planning.
We have been advising and working with artists for a number of year. We are available to discuss your affairs and help you plan for the future. Please contact any of the tax team on: 01 496 5388. We look forward to talking with you.
