ATO Interpretative Decision
ATO ID 2004/511 (Withdrawn)
Income TaxLicence to use image granted to a family trust
FOI status: may be released
This ATO ID is withdrawn with effect from 24 August 2018.
On 8 May 2018 the Government announced (2018 Budget Paper 2, page 45):
The Government will improve integrity in the tax system by ensuring that from 1 July 2019, high profile individuals are no longer able to take advantage of lower tax rates by licencing their fame or image to another entity.
We also have concerns about the tax effectiveness of at least some of the arrangements we have observed.
For the period up to 1 July 2019, the ATO will not seek to apply compliance resources to review an arrangement entered into prior to 24 August 2018 (the date of withdrawal of this ATO ID and draft Practical Compliance Guideline PCG 2017/D11), where that arrangement was entered into and carried out as a consequence of the taxpayer relying on ATO ID 2004/511 in good faith, provided any payments fall within the safe harbour contemplated by the withdrawn draft PCG 2017/D11.This document has changed over time. View its history.
Status of this decision: Decision withdrawn 24 August 2018.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Where the taxpayer, the trustee of a family trust, executes a deed with a professional sportsperson which grants the family trust a non-exclusive right and licence to use and exploit the name, image, likeness, identity, reputation and signature (hereafter referred to as 'image') of the sportsperson, has the sportsperson vested property in the trustee such that the trustee derives assessable income that is not personal services income for the purposes of Part 2-42 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. The sportsperson has vested property in the trustee to the extent that the deed grants a licence to the trustee which authorises the exploitation of the sportsperson's image such that the trustee derives assessable income, which is not personal services income for the purposes of Part 2-42 of the ITAA 1997, from the use of the licence.
The taxpayer, the trustee of a family trust executes a deed with a professional sportsperson which grants the taxpayer a non-exclusive right and licence to use and exploit the image of the sportsperson in any form whether written, electronic or otherwise.
The operative provisions of the deed have the effect that:
- the sportsperson grants the taxpayer the non-exclusive right and licence to use the image of the sportsperson throughout Australia, and
- the taxpayer agrees to employ the sportsperson to perform certain services including:
- participating in promotional, marketing and advertising activities
- cooperating with sponsors, suppliers and licensees of the sportsperson's image
- appearing on television and radio programs
- giving interviews to television, radio, newspaper or magazine journalists
- using and endorsing nominated products or services
- cooperating with media as and when required by the trustee.
The taxpayer contracts with various media for the supply of the sportsperson to make radio and television appearances and provide interviews. The taxpayer also contracts with manufacturers of sports merchandise for the usage of the sportsperson's image on merchandise related to the sportsperson's sport. The taxpayer generates income for the trust under these contracts.
Reasons for Decision
Personal services income is defined under subsection 84-5(1) of Part 2-42 of the ITAA 1997 as follows:
Your ordinary income or statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would be mainly such a reward if it was your income).
Paragraph 20 of Taxation Ruling TR 2001/7 Income tax: the meaning of personal services income (TR 2001/7) explains that Part 2-42 of the ITAA 1997 requires each item of ordinary or statutory income derived to be analysed to determine whether or not it is personal services income. An entity may therefore have some income which is personal services income and some which is not.
Paragraph 29 of TR 2001/7 also clarifies that income which is mainly from assets an entity holds is not personal services income.
For present purposes, it is therefore necessary to determine which items of ordinary income of the trust arise mainly from the exploitation of assets and which are mainly a reward for the efforts or skills of the professional sportsperson.
The income of the trust derived under its contracts with various media whereby the contract fee is mainly a reward for the personal efforts or skills of the sportsperson will be personal services income of the sportsperson within the meaning of Part 2-42 of the ITAA 1997. Examples would be the income derived by the trust from the sportsperson's radio and television appearances and media interviews.
Under current Australian Law, a sportsperson does not have a right of property in their name, image or likeness (Australian Consolidated Press Ltd v. Ettinghausen (unreported, NSWCA, 13 October 1993 at para 7); Re Elvis Presley Trade Marks  RPC 543 at 547. A sportsperson therefore cannot assign any such property to a family trust or company.
However a professional sportsperson may pursue a cause of action in the tort of passing off or for breach of section 52 of the Trade Practices Act 1974 if the sportsperson's image or likeness is used in a manner which misleads the public or a significant portion of the public into thinking there is some form of association, licence or endorsement between the sportsperson and the product or services of another trader (Hogan v. Koala Dundee Pty Limited (1988) 20 FCR 314; Talmax Pty Ltd v. Telstra Corporation Ltd  2 Qd R 444; Pacific Dunlop v. Hogan (1989) 23 FCR 553).
The execution of an instrument which authorises action which might otherwise have led to a cause of action in passing off or for a breach of section 52 of the Trade Practices Act creates a 'licence' in the grantee. A licence is a 'permit to do something which without a licence would be unlawful' (Butterworths Australian Legal Dictionary, 1998, 2nd edn. Nygh, P and Butt, P). For this reason, a licence is created to the extent the deed purports to grant the trustee the non-exclusive right to use the image of the sportsperson in Australia.
The granting of a licence vests property in the grantee which did not previously exist. In law, 'property' is described as 'every type of right, (that is, a claim recognised by law), interest or thing which is legally capable of ownership and which has a value'; (Butterworths Australian Legal Dictionary, 1998, 2nd edn. Nygh, P and Butt, P).
The sportsperson vests property in the trustee to the extent that the deed grants a licence to the trustee which authorises the exploitation of the sportsperson's image. The right to use the image of the sportsperson is an asset. Under paragraph 29 of TR 2001/7 income generated by assets an entity holds is not personal services income. Therefore, income derived by the trustee under contracts with manufacturers of sports merchandise for the usage of the sportsperson's image and signature on merchandise related to the sportsperson's sport is not personal services income.
However, the income the trustee derives under its contract with various media whereby the contract fee is mainly a reward for the personal efforts or skills of the sportsperson will be personal services income of the sportsperson. Therefore, to the extent the deed purports to grant the trustee rights in relation to the services of the sportsperson, this is a contract of services between the trustee and the sportsperson. The income generated by the trust from supply of the sportsperson's services is the personal services income of the sportsperson within the meaning of Part 2-42 of the ITAA 1997.
|Date of Amendment||Part||Comment|
|19 July 2017||Issue||Removal of the word 'talents' from the first sentence for clarity.|
|16 January 2015||Facts||Format changes.|
|Reasons for Decision||Add full title of TR 2001/7.|
|Reasons for Decision||Add footnote to the reference to Trade Practices Act 1974 to reflect the new legislation.|
|Reasons for Decision||Reword concluding paragraphs for clarity.|
|Reasons for Decision||Delete last paragraph as it is a repeat.|
1. From 1 January 2011 the Trade Practices Act 1974 (Cth) was replaced by the Competition and Consumer Act 2010 (Cth). For transactions that occurred up to 31 December 2010 the Trade Practices Act 1974 (Cth) will continue to apply.
Year of income: Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007 Year ended 30 June 2008Trade Practices Act 1974
Australian Consolidated Press Ltd v. Ettinghausen
(unreported, NSWCA, 13 October 1993)
 RPC 543. Hogan v. Koala Dundee Pty Limited
(1988) 20 FCR 314 Talmax Pty Ltd v. Telstra Corporation Ltd
 2 Qd R 444 Pacific Dunlop v. Hogan
(1989) 23 FCR 553
Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/7
Butterworths Australian Legal Dictionary, 1998, 2nd edn. Nygh, P and Butt, P
Alienated personal services payments
Alienation of personal services income
Personal services income
Date reviewed: 2 June 2017