Artists’ tax exemption may be in line for a future tweaking

It was introduced by Charlie Haughey in 1969 to support local talent and attract artists to settle in Ireland. Now, judging by documents released in parallel with Budget 2017, Ireland's artists' exemption might be set for a further tweaking.

In 2011, a cap of €40,000 was placed on the amount of artists’ income exempt from tax every year. This was increased to €50,000 from January 1st, 2015 and it is described in the report as a “more targeted” scheme, aimed at supporting artists on low incomes.

The legislation allows the Revenue Commissioners to make determinations in respect of a range of artistic works, including a book or other writing, a play, a musical composition, a painting or a sculpture.

In 2014, the most recent year for which data is available, 2,640 artists availed of the exemption at a cost of €5.8 million to the exchequer. That’s an average of just under €2,200 each.

A review was undertaken for last year’s budget, with a recommendation from the Department of Finance to review the scheme, with a view to possibly introducing income averaging for artists.

To date, this has been afforded only to farmers in recognition of the fact that many of them are at the mercy of the high and lows of agricultural prices and the weather, causing extreme volatility.

“It has long been recognised where the profit level is increasing, income averaging reduces the amount of tax to be paid and improves cash flow in the short term,” the budget document states.

“ However, the profit can also reduce and this may increase tax liability when compared with the actual liability for that year alone. Those opting to average their income are warned to make provision for future tax liabilities.”

Tax credits

The benefit to be gained by income averaging is this: where there is a year of low income, unused tax credits and bands are effectively transferred to other years.

Bearing in mind that income averaging is somewhat counter-cyclical: in years when profit is low, the individual would have a higher tax liability compared with the liability for that year alone.

This would arise due to the individual paying averaged tax. The overall tax liability is never more than under the normal system and is often less, according to the report.

In the finish, it was concluded that income averaging might not be the best solution for artists.

"While there was a call from the Arts Council and IMRO [the Irish Music Rights Organisation] for some form of income averaging for artists, there has been little by the way of representations from artists for the introduction of income averaging," it stated.

“Given . . . the complexities income averaging would introduce, it does not appear to be the ideal solution to support artists. Introducing income averaging to run in parallel with the artists’ exemption would benefit artists with higher incomes and not those with limited earnings.”

The report said it was “likely” that other forms of funding would better suit the needs of artists. It was “arguable” that direct support to the arts sector would have “more of an overall impact than income averaging”.

Being free spirits and creative types, the artists would probably prefer this solution rather than being lumped into the same pen as farmers.