New Zealand’s new resale royalty scheme for visual artists will commence on 1 December 2024. The scheme requires payment of a 5% royalty on each resale of qualifying visual artworks in the secondary market. New Zealand artists or their estates will be entitled to receive a portion of the royalty payments.

Whether the scheme will effectively achieve its policy objectives is questionable. The scheme will mainly benefit well-established artists, with the royalty payment only applying to artworks resold for $2,000 or more. The scheme will also require government funding until the scheme becomes self-funding.

How will the resale royalty scheme operate?

Our earlier article provides an overview of the key features of the resale royalty scheme established under the Resale Right for Visual Artists Act 2023. Since then, the Resale Right for Visual Artists Regulations 2024 have been released and the Ministry for Culture & Heritage has provided more information about the scheme.

Summarised below are additional key features of the scheme that have been confirmed: 

• Resale value of artworks: A 5% royalty payment will apply to visual artworks sold for $2,000 or more (excluding GST, tax and duties under the Customs and Excise Act 2018, and any commission or buyer’s premium). This royalty payment applies to qualifying resales in the secondary market made through art market professionals, including auctioneers, dealers and gallery operators. As a default position, the seller and their agent acting in the resale will be jointly liable for paying the royalty to the collection agency. 
• Collection agency: Copyright Licensing New Zealand (CLNZ) has been appointed as the collection agency responsible for collecting, holding and distributing the royalties. CLNZ’s appointment is initially for a term of three years. CLNZ announced that it will be engaging with the arts sector on operation of the scheme ahead of the 1 December 2024 launch.
• Administration of resale royalty payments: CLNZ is entitled to retain 20% of the resale royalties it receives for funding its activities. The remaining portion of the resale royalties must be paid to the eligible artists or their estates, including those based offshore and resident in a reciprocating jurisdiction.
• Declined and unclaimed resale royalties: Artists and their estates can decline to receive a resale royalty. If CLNZ is left with an amount because it was declined by the artists or estates, or if they cannot be found, then as a default position CLNZ must apply the money to a cultural fund if one is established.
• Cultural fund: CLNZ may establish and operate a cultural fund for the purpose of supporting the career sustainability of visual artists. CLNZ must decide how the fund will be structured following engagement with relevant stakeholders. 
• Review and consultation: The Ministry has stated that the scheme will be reviewed every three years to ensure it is functioning effectively. Any proposed operational changes by the collection agency require public consultation and engagement with Māori on relevant matters.

Our comments

The Regulations and additional information provide welcome clarification about how the resale royalty scheme will operate. This should give artists a better understanding of how they can benefit from the scheme, and should provide greater certainty for businesses and the public about their compliance obligations. 

There are, though, some factors that remain unclear or raise questions about whether the scheme will effectively and efficiently benefit New Zealand artists. Below are some high-level observations:

• It is interesting that the minimum value for the resale of artworks has been set at $2,000. The Ministry earlier proposed a minimum resale value of $1,000, which could have benefited a larger number of artists because the royalty payment would have applied to more resales. 
• As discussed in our earlier article, the material benefit to most artists will likely be limited. Treasury’s estimations indicate that about 5% of living New Zealand artists would have received royalty payments from auction house sales if the scheme had been in place in 2020.
• It is intended that the scheme will become self-funding, but it is not known how long that will take and it will depend on any fluctuations in the New Zealand art market. Realistically, it may never be cost effective. Government funding could be required over several years to support the scheme until it becomes self-funding.
• It is understood that Inland Revenue is working with the Ministry to prepare and publish, within the next few months, some basic guidance on the tax treatment of royalty payments received by artists and their estates. We expect the guidance will confirm that the royalty is in the nature of income in the hands of a local artist (or their estate) and should be treated accordingly. A more complex issue is whether CLNZ will be required to withhold non-resident withholding tax (NRWT) on royalty disbursements to recipients in reciprocating jurisdictions. This turns on whether the royalty is a “royalty” as defined for tax purposes, which is not obviously the case. Inland Revenue guidance on this matter would also be welcomed. 

Next steps

Businesses will need to take steps to ensure that they comply with the scheme once it commences on 1 December 2024.

We look forward to seeing how the scheme operates in practice and whether it will achieve its policy objectives.

Please reach out to one of our specialists if you have any questions.

Special thanks to Barney Cumberland, Priya Prakash and James Burnett for their assistance in writing this article.