When it comes to Australian literary prizes – did you know that the prize money is taxable?
Yes, you read that right.
Next time you win the Miles Franklin, after you’ve sobered up from the after party and cashed your cheque for $60,000, the taxman will insist that you include your literary windfall as ‘income’ on your next tax return.
But don’t despair. Big win at the horse races? All that cash is yours to keep. Take home the grand prize on a TV quiz show? All yours. Place a bet on yourself as the winner of the Miles Franklin? Again, if you guessed right, you keep the cash and dodge the tax.
It’s only if you actually WIN the Miles Franklin that the taxman comes knocking. How good is Australian taxation law!
It’s not just the Miles Franklin, of course. The prize money associated with every literary prize is considered income for taxation purposes. As is the prize money associated with other prizes in the arts sector, such as the Archibald Prize for portraiture. Similarly, artistic grants and fellowships are also subject to income tax.
There are some important exemptions. This is Australia – we love an exemption.
Gambling and lottery winnings are – famously – tax exempt. The Australian government sees gambling winnings as a fortunate windfall, and allows punters to keep the entirety of their winnings. Even gamblers whose winnings are based on skill (such as professional poker players) are not asked by the Australian government to pay taxes on their winnings.
The Stawell Gift, Australia’s oldest and richest short distance running race of 120 metres is awarded each year with complete tax exemption due to its target contestants of young ‘amateur’ sportspeople. And, tellingly, the $100,000 prize money for the annual Prime Minister’s Literary Award is also tax exempt – implying that the people at the top do know there’s a problem.
The logic, if you can call it that, is in the concept that prizes and grants are considered ‘ordinary’ income avenues for writers, even though most writers will never win a large prize. The tax office says if a writer is in the business of writing, then prize money is simply an additional source of income. Because apparently writers are just like professional tennis players… Although, that said, many other sports people are in a similarly unenviable position – this newspaper article about a case that the Australian Olympic Committee took to court demonstrates how ambiguous it all is. To add to the ambiguity, its my understanding that sportspeople who study at the Australian Institute of Sport don’t end up with the same HECS debt that students at every other tertiary institution are saddled with (although perhaps this has changed recently, I don’t know).
The silver lining to all this (albeit perhaps only electroplated) is that for income tax purposes, writers who can demonstrate that they are ‘in business’ as a professional rather than a hobbyist, are able to claim their expenses against all forms of income. Every book they buy, every notepad, every pen; all tax deductible. Writers are also able to average their often very lumpy income over a four-year period – which is where it all gets too complicated for me and I seek the advice of my accountant. You should seek advice too. I am NOT a financial advisor! Add GST into the mix and I simply start sobbing.
The long and the short of it is this: despite the difficulty of earning a meaningful income from a writing career, literary awards, prizes and grants continue to be subject to personal income tax. As a result, the value of these prizes is significantly decreased. What’s your view – is taxing a writer’s prize money the right thing to do?
I believe that industry groups like the Australian Society of Authors (ASA) are lobbying for change. Change that would cost the Australian government very little in real terms. Frankly, in the current political climate, I don’t like the odds of seeing significant change in my lifetime. But if you can manage to find a bookmaker willing to take your bet on it, go right ahead. The winnings will be yours to keep.
For further information, try the Australian Taxation Office, and specifically:
You might be surprised: I’m not in favour of change. There are not enough people paying tax already, and that is why we have homeless people on the streets and not enough public housing. That is why old people are treated shabbily in aged care and why people wait for ages on the NDIS.
if literary prize money were exempted then, our legal system being what it is i.e. based on precedent, you can bet that in no time all those other very well paid professional sportspeople you mentioned would win their case against the ATO. And that would make a very big dent in the already inadequate tax base.
It’s true that writers are not paid well. But anyone with a small income would actually pay very little tax on the MF because it would be averaged over 4 years. If the winner actually had no income at all, and claimed no deductions at all, and was silly enough to declare it all in one year, it would still only be about $11,000, leaving a tidy sum all the same.
IMO it should stay the way it is which is that it’s the person’s personal circumstances that matter, i.e. the prize is income and that income, as for the rest of us wage and salary slaves can be offset against necessary expenses. I give you one example to make my point. Trent Dalton has won every prize going with his book. I have no idea what it would all add up to, but I’d guess the total must be a good deal of money. On top of bestsellers sales, and ELR, PLR and CAL. Do we really want to see all that prize income untaxed?
PS Yes, always see an accountant, but writers can in general claim a dedicated home office and all its accoutrements including heating and cooling it, plus computer/laptop, a proportion of ISP expenses if using it for research, membership of the ASA & writers centres, and *depending on a lot of complex issues*, travel for research purposes. The issue always is, was the expense solely for the purpose of doing the work and are you using that ISP for other purposes as well like mostly watching movies. I think the ATO would look very closely at travel to Paris for research purposes, maybe not so closely at trundling up the Hume to Gundagai!
I think we’re in violent agreement that our tax dollars should be better spent. I’d happily forego a couple of submarines in exchange for increasing the Newstart allowance, for example. It’s the inconsistency that gets up my nose, I suppose. And the court case described in the newspaper ended up, according to the article, NOT classing at least some of athlete’s prize money as income! Given that in this country The Arts are at least as well attended as Sport, I just wish they were at least as well supported by the federal government. Oh well, one can dream, I suppose.
Well, we did of course, have Kevin Rudd’s tax review back, but that’s been shelved as were the reforms suggested by Shorten. They will all have to be confronted eventually. Every economist in the country says so.
Better support for the Arts: I’m with you 100% there.
Lisa, whose main point I agree with completely, is talking about the same people who won’t let me claim a travel allowance – and they allow themselves a hundred and more dollars a day – because I make my lunches at home. Yes, I’m bitter.
Yes artists should get support, but not at the cost of further debasing the tax system. Personally, I think the tax rate should be increased and every man and woman should get a tax ‘rebate’ whether or not they pay tax, and if some choose to live off the rebate and be full time surfies or full time writers, then good luck to them, it’s not just share market miners like Andrew Forrest who make good Australians.
The idea of a universal income is a sound one, I think. You’ve got my vote. And see my comments about inconsistency, above. I think the reason professional gamblers get let off the taxation hook is because if the government taxed their income, the gamblers would then be able to claim all their losses as expenses – and that seems unlikely to end well for Treasury.
The basic reason behind the gambling provision is that the entire legal gambling system in all forms is premised on the fact that there is a profit to be made and it’s not made by the gambler. All the research evidence suggests that with very rare exceptions e.g. winning a million in Tatts, overall the gambler loses more than he wins. (Though of course if that gambler wins late in life, and from age 20 to 75 has spent $25 per week on Tatts, (not uncommon), he’d have ‘invested’ $715,000, which is not far off a million dollars. And that’s not counting the opportunity cost of all that $715,000 being invested or put into superannuation or being used to buy a house instead of renting etc).