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This Ruling discusses benefits received by individuals from involvement in sport. Where a sportsperson is uncertain whether a receipt or benefit is assessable income they can request a Private Binding Ruling from the Australian Taxation Office.
In this Ruling benefits include: payments received such as salary, wages, allowances and cash prizes and benefits received in kind such as prizes received in the form of a motor vehicle or holiday. This Ruling does not discuss whether a sportsperson is an employee or if amounts received come within the extended scope of the PAYG system.
This Ruling applies to individuals who receive benefits through their involvement in sport. This may be either as a participant or as an official, such as a referee or coach. The Ruling does not distinguish between an 'amateur' or a 'professional' sportsperson.
These distinctions are not determinative for income tax purposes. This Ruling, with the exception of those situations listed below, applies to years of income commencing both before and after its date of issue. Previous advice includes both advice given to him or her personally and advice given to an organisation representing sportspeople in his or her field of activity.
For sportspeople in the above circumstances this Ruling applies to payments received from the year of income commencing 1 July Ruling 8. Statutory income includes non-cash benefits that may not be ordinary income.
This includes the exploitation of personal skills in a commercial way for the purpose of gaining reward. In contrast to the items listed in paragraph 9, money and other benefits received from the pursuit of a pastime or hobby are not assessable income.
If follows that any related expenses are not allowable deductions from those receipts. Payments to sportspeople that do not fall within any of the items listed in paragraph 9 are often made in the absence of any legal obligation of the payer to do so.
Such payments are referred to as voluntary payments. Typically, voluntary payments are made as either a series of payments, such as under a grant, or as an 'occasional' payment, such as an award or prize. The fact that a payment is voluntary does not mean that it cannot be assessable income.
A payment which is received as a part of a series of voluntary payments, such as under a grant, will be assessable income in the ordinary sense of the word if it has one or more of the following characteristics: i it is made under an agreement or arrangement to provide financial support in the form of periodical, regular or recurrent payments; ii it is received in circumstances where the sportsperson has an expectation of receiving the payment as part of periodical, regular or recurrent payments, and the sportsperson is able to rely on the payment for his or her regular expenditure; or iii it is part of periodic, regular or recurrent payments made in substitution of income.
Expenses of sports are not allowable deductions against voluntary payments, as these expenses do not relate to the voluntary payment received. Whether the receipt of an 'occasional' voluntary payment or benefit is assessable income needs to be determined on a case by case basis.
An 'occasional' voluntary payment received in relation to sporting activities is: i considered to be assessable income if paid to the sportsperson in relation to an activity that can be considered to be income-producing eg.
Such payments are in the nature of a 'windfall gain'. This includes receipts incidental to a pastime or hobby, and 'occasional' voluntary payments paid and received on purely personal grounds. An award in medal or trophy form will not be assessable income as it is given and received on purely personal grounds, recognising and recording a particular achievement of the person.
Explanations Ordinary income Under subsection 1 of the ITAA an amount is assessable income if it is income according to ordinary concepts ordinary income.
Motive, however, is rarely decisive as in many cases a mixture of motives may exist. Section of the ITAA includes in assessable income amounts that are not ordinary income; these amounts are statutory income.
The provisions relating to statutory income provide for the money value of non-money benefits to be included in assessable income.
An exception to this are benefits that are provided to employees in respect of their employment. The amount of income is the arm's length value of the benefit.
Income and benefits received by an employee The relationship between an employer and an employee is a contractual one.
Whether a sportsperson is an 'employee' must be considered from the totality of the relationship. Payments which are assessable income include salary, wages, bonuses, allowances, sign-on fees [F10] , inducement or retention payments for continuance of service [F11] , termination payments, cash prizes and cash awards.
Payments received from public appearances, product promotions and endorsements, if received in connection with an employment contract, are also assessable income. Payments mentioned in the preceding paragraph are assessable income whether they are paid by the employer, or by a third party to the sportsperson in the sportsperson's capacity as an employee [F12].
If a sportsperson directs that the payment is made to a third person, the payment remains assessable to the sportsperson. Also, an amount received from a third party by the employer for the purpose of rewarding an employee will be assessable income [F13] of the employee when received by the employee.
Where a payment is received for a public appearance, product promotion, prize or endorsement as a direct result of the employee's employment, although not under an arrangement with the employer or an associate of the employer, it is assessable income.
In Kelly v. In that case, Franklyn J held that the amount was assessable income of the sportsperson because it was directly related to his employment as a footballer. Income for services provided outside of employment The provision or rendering of services consists of the doing of an act for the benefit of another, which is more than the mere making of a contract and which goes beyond the performance of an obligation undertaken in the course of an ordinary commercial contract [F15].
Accordingly, a sportsperson will only be providing a service where they are undertaking an activity for the benefit of another party; usually this will be the payer.
The provision of services includes, for example, the performing of specific administrative, technical or promotional services of direct benefit for the payers. Such payments are typically 'tied to' and 'based on' activities undertaken, or hours spent performing duties, that produce objective and tangible often monetary benefits for the payer.
Income includes payments, prizes and awards received in connection with services provided. Also included are receipts incidental to the services provided. The value of non-monetary benefits becomes assessable income through the operation of section of the ITAA Where a sportsperson is entitled to receive an amount for services rendered and the amount is received by another person on behalf of, or at the direction of the sportsperson the amount is assessable income of the sportsperson subsection 4 of the ITAA Such an amount would include payment to a trustee for the benefit of the sportsperson or payment to an associate or relative of the sportsperson.
Income from business activities Amounts of a revenue nature received from carrying on a business of participation in sport are assessable income to the sportsperson Example 1.
Both situations above will result in sport becoming a taxpayer's vocation or calling and therefore a business see definition of 'business' in section of the ITAA A sportsperson's business could also involve the commercial exploitation of his or her 'public fame' or 'image'.
This is despite the fact that many of the usual indicators of a business are absent, eg. A sportsperson will not be carrying on a business in respect of his or her sporting activities merely because he or she is utilising his or her skills in a systematic, regular and organised manner unless he or she is doing so for the purpose of commercially exploiting those skills.
Amounts of a revenue nature include any payments of prizes, awards or benefits that are received as a result of carrying on the business. The value of non-cash prizes or awards is included in assessable income through the operation of section 21 or section 21A of the ITAA Whether an activity is a business is a matter of fact.
Whether a person is carrying on a business can only be determined by considering all the relevant facts and circumstances. Similarly, as business includes the exploitation of personal skills in a commercial way for the purpose of gaining reward, it is necessary to consider all relevant facts surrounding amounts received from the pursuit of sporting excellence Example The Ruling deals with carrying on a primary production business; however, the principles discussed in the Ruling apply to any set of operations.
Receipts incidental to a pastime Where a person's sporting activities constitute a pastime or hobby rather than an income-producing activity, money and other benefits received from the pursuit of that pastime or hobby are not assessable income, nor are the expenses allowable deductions.
Participation in activities generating pastime or hobby receipts is a social or personal pursuit of a non-commercial nature.