Do you have to pay tax on prize money?
READ ON to find out what you need to know before knowing whether any prize money you get is gross or net of tax.
This page covers:
  • General principles about tax as applied to art prizes
  • Tax on art awards and prizes in the UK, Ireland and Germany; the USA and Canada and Australia
Sooner or later, if you apply yourself to art and you are extremely talented or just very lucky you will win an art award or prize. 

​You start contemplating how to spend it - but do you ever think of giving any of your prize money to the tax man?

NOT on this site

This site does NOT provide:
  • Definitive answers on all matters relating to tax records for where you live. 
  • "Professional advice" available from somebody  with a tax qualification and current expertise of tax affairs anywhere in the world. 
You should engage/pay a professional for tax advice IF:
  • your tax affairs are complicated 
  • you have a specific tax query which you can't find an answer to from official information available online.

General principles for artists about tax on prize money 
​

The principles relating to tax are generally the same for everybody who enters competitions.

In general, if prize money is regarded as part of the normal way in which people following a profession earn money (whether they are a golf player or an artist) then the prize money is earned income and is taxable.

However if you earn an award which you don't enter, it cannot be competed for and is awarded as a mark of honour or distinction then the award is not taxable.
Picture
the announcement of an award at the Mall Galleries in 2016

Tax on prizes in the UK 
​

There are many prizes and awards open to authors and other creative artists.... and entering competitions or seeking awards is a normal part of such professions.
BIM 50710: Authors and literary profits: awards and bursaries
Two types of Prizes

Prizes can be
  • EITHER given ‘as part of the exercise of a profession’ (counted as part of an artist’s income, to be taxed accordingly at 25% or 40%, with expenditure being offset against tax).
  • OR prizes that are unsolicited. These are awarded as ‘marks of honour, distinction or public esteem in recognition of outstanding achievement’. ​
Where an award, grant, bursary or prize is received, the determining factor in considering whether or not such an award etc is taxable is the quality of the award in the hands of the recipient. If it comes to the individual as an incident in the exercise of his or her profession or vocation (including a subsidiary or part-time activity the profits from which are charged to Income Tax as the profits of a profession), it should normally be treated as a professional receipt and included in the computation of the taxable profits

A .... prize which is unsolicited, and which is awarded as a mark of honour, distinction or public esteem in recognition of outstanding achievement in a particular field, including the field in which the recipient operates professionally, is not chargeable to tax.

BIM 50710: Authors and literary profits: awards and bursaries
Prizes which are exempt from tax are normally defined by HMRC in advance (eg the Nobel prize).

If a prize is unsolicited and the panel of Judges draws up the shortlist independently then this sort of prize also qualifies as a mark of esteem (if the Judges are good enough!). ​
The General Rule (in the UK)

The key issue is whether the prize is something that many artists try to earn. If it is a 'professional receipt' then it is taxable.

The basic underlying rule is that ALL  income from a trade, profession or vocation must be declared for income tax purposes

If you win a prize at an open art exhibition or you enter an art competition offering prize money of your own accord then any money you receive as a result is treated as a "professional receipt" and should be included on your self employed schedule for this source of income.

In other words prizemoney is seen as resulting from behaving in a manner commensurate with "being an artist" i.e. prizes are a normal way of earning income for that profession.  For this reason, in general, if a gallery or agent or somebody who acts for an artist puts them in for a competition the same principle applies.

As such the income earned - by way of a prize - should be added into the total income earned as an artist in a tax year and taxed.  However the cost of entering - from submission fees to framing and transport costs are allowable expenses - and that applies even if you don't win the prize!

Also In the visual arts, original works of art are rarely ‘published’ (in the literary sense) and need to be submitted by someone as physical objects for viewing and adjudication.

The caveat - the case of the amateur and prizes for amateurs

If you create art as a hobby and not a profession, you may not have to pay tax.

However the decision as to whether or not the prize is taxable will rely on whether a distinction can be made between:
  • participating in a hobby on the one hand and
  • pursuing a trade on the other
The distinction made very much relies on facts and degree. For example, if there was a query, HMRC would doubtless pay attention to the other "badges of trade", In essence if you organise to make a profit then the prize will be taxable.

In the case of the prize - if it is intended to promote participation in an amateur endeavour and is commensurate with amateur status (i.e. nominal) then the amateur prize won by an amateur is NOT a 'professional receipt'

Grants and bursaries

The following are items from a 1979 Memorandum of Understanding between HMRC and the Arts Council as to how different awards would be treated for tax purposes. Obviously not all of these are relevant to visual artists but they demonstrate the range and the principles of how the HMRC views taxation of prizes.
Category A: taxable items
  1. Direct or indirect musical, design or choreographic commissions and direct or indirect commissions of sculpture and paintings for public sites
  2. The Royalty Supplement Guarantee Scheme
  3. The Contract Writers’ Scheme
  4. Jazz bursaries
  5. Translators’ grants
  6. Photographic awards and bursaries
  7. Film and video awards and bursaries
  8. Performance Art awards
  9. Arts Publishing grants
  10. Grants to assist with a specific project or projects (such as the writing of a book) or to meet specific professional expenses such as a contribution towards copying expenses made to a composer, or to an artist’s studio expenses
Category B: items exempt from tax
  1. Bursaries to trainee directors
  2. In-service bursaries for theatre directors
  3. Bursaries for associate directors
  4. Bursaries to people attending full-time courses in arts administration (the practical training course)
  5. In-service bursaries to theatre designers and bursaries to trainees on the theatre designers’ scheme
  6. In-service bursaries for administrators
  7. Bursaries for actors and actresses
  8. Bursaries for technicians and stage managers
  9. Bursaries made to students attending the City University arts administration courses
  10. Awards, known as the Buying Time Awards, made, not to assist with a specific project or professional expenses, but to maintain the recipient to enable him to take time off to develop his personal talents.
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Tax on art prizes and awards in Ireland
​

You may receive grants, awards or prizes for your artistic work. These are generally taxable as income. However, if the payments relate to a work that has qualified for Artists' exemption, they may be tax exempt. Any exemption is subject to the maximum amount of €50,000 per year (€40,000 for 2011-2014)

If you have been granted Artists' Exemption, the following payments qualify as exempt income:
  • - Arts Council bursaries when paid directly to you by the Arts Council
  • - Cnuas payments made under the Aosdána Scheme
  • - payments from the sale of qualifying works abroad which fall within the guidelines
  • - residencies when paid directly to you by the Arts Council for the purposes of producing a qualifying work.
  • ​Artists' Exemption | IRISH Tax and Customs
Ergo - prizes won in Ireland by artists who do not enjoy an Artists Exemption are not exempt and are taxable.
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Tax on art prizes and awards in Germany
​

Cash awards are generally subject to income tax if they are
  • linked to the recipient’s professional activity
  • awarded to pursue an artistic or creative activity.

As in the UK if the prize honours, for example, the artworks created during an artist's life then this would be considered an honour and tax would not be payable.
REFERENCE:

Tax on art prizes and awards in the USA
​

Artists who win cash awards or prize money in the USA are taxed on that income.

BUT it depends on:
  • which state law covers the prize
  • whether that state taxes prizes
  • whether the recipient is a resident or not 

States and Taxes

Many of the individual states of the United States tax the income of their residents. Some states honor the provisions of U.S. tax treaties and some states do not. 

Non-resident artists

Residency for treaty purposes is determined by the applicable treaty.

In principle, any artist who is a non-resident who wins a cash award of “U.S. income” in the USA​ is subject to the 30% withholding requirement.

Organizational responsibility

Organisations are responsible for filing in respect to all payments of awards and prizes. Form 1099-MISC box 3 should be used to report all cash payments for prizes and awards worth at least $600 that are not for services performed. 

​The organisation responsible for the award is also responsible for the withholding i.e. 30% of the gross income paid to the artist must be withheld by the payer and deposited with the U.S. Treasury. Whether the artist is exempt from withholding depends on the tax treaty between the USA and the artists normal country of residence.  Paperwork is also required to be definitive as to what is being paid over and why.
Prizes as Honours

The USA is NOT as kind to those who receive a prize as an honour. To qualify for a tax exemption 'exclusion'
  • you must be named the winner without any action on your part (i.e. you did not apply for the award or enter a contest); AND
  • you are not obliged to perform any function or service in return; AND
  • (following the Tax Reform Act of 1986) you immediately assign the proceeds of the prize away from yourself to a charity!!!
Bottom line: no funds = no taxes - and no financial benefit for being the worthy winner of an accolade (unless you want to declare the income and pay the taxes due on it).
Prizes vs Scholarships

Scholarship or fellowship grants to the recipient for teaching, research, or other services - as a condition for receiving the grant - are considered wages. and are taxable ​
If the awarded money can be used in any way that the recipient pleases, it is not a scholarship or fellowship. Therefore it is subject to 30% NRA withholding rather than 14% if the recipient is an NRA. 
REFERENCE:
Note: I must confess I find the US Tax System more complicated and confusing compared to the UK one - and there are absolutely no guarantees I've understood this all properly!

Tax on art awards and prizes in Canada

Prescribed prizes are not considered taxable income. However, winning any old prize won’t do; a prescribed prize is defined as “any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts, the sciences or service to the public.”
The principles work the same in Canada as elsewhere (except the USA).  If the award is for a meritorious reason then it need not be declared as part of your income.

Grants and burseries are to be included in an artist's income. There are specific rules relating to thresholds for scholarships
REFERENCE:

Tax on art awards and prizes in Australia

Like other countries, Australia assumes that prizes won as an incidental of their normal business are ‘ordinary’ income avenues for artists. This is despite the fact that many artists will never win one and the big prizes are won by extremely few artists.

In addition, it has made provision for certain named awards to be declared as not assessable for tax purposes - namely the BHP Awards for the Pursuit of Excellence
In determining whether a prize or gift is ordinary income, the courts have established that consideration of the whole of the circumstances is necessary and that the following factors need to be taken into account :
· how, in what capacity, and for what reason the recipient received the prize or gift (Squatting Investment Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570, (1953) 5 AITR 496; (1953) 10 ATD 126 (Squatting Investment Case))
· whether the prize or gift is of a kind which is a common incident of the recipient's calling or occupation (Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 10 AITR 367; (1966) 14 ATD 286 (Scott's Case))
· whether the prize or gift is made voluntarily
· whether the prize or gift is solicited (Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47; (1956) 6 AITR 248; (1956) 11 ATD 68 (Hayes' Case) and Scott's Case)
· whether the prize or gift can be traced to gratitude engendered by some service rendered by the recipient to the prize of gift donor (Squatting Investment Case)
· the motive of the prize or gift donor (though this factor is rarely decisive in itself) (Hayes' Case); and
· whether the recipient relies on the prize or gift for regular maintenance of themselves and any dependants (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; (1952) 10 ATD 82 (Dixon's Case) and FC of T v. Blake (1984) 75 FLR 315; (1984) 15 ATR 1006; 84 ATC 4661).
ATO ID 2002/644
Previous Archibald recipient, Ben Quilty, who won with his portrait of Margaret Olley in 2011 says “it’s completely insane inequality.” Ben has spoken out about this issue in the past, noting that 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.
Although undoubtedly it will be the case that awards sometimes will be made in respect of achievements directly related to a winner's vocation, business, etc., the nature of the award is that of a personal windfall or gain not having the qualities of income. Such awards therefore, will not, be assessable income in the hands of recipients.
IT 2145 | Income tax : BHP awards for the pursuit of excellence - whether assessable income
Picture
Archibald Prize 2011: Margaret Olley by Ben Quilty
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