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Ruling

Subject: Personal service income

Question 1

Is the income received by a private company for product endorsement personal services income?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The individual is a professional athlete.

The entity has entered into a sponsorship agreement with Company A.

The entity receives an annual payment paid on a monthly basis for the promotion of Company A and associates.

An incentive payment is also payable to the athlete if a particular result is achieved in stated events.

The yearly income payable under the contract is principally derived from the product endorsement and the use of the athlete's name and is not produced mainly from the exercise of the athlete's skill and judgement

Under the Company A sponsorship agreement - sponsorship terms and conditions (the agreement) the athlete through the entity is required to

You have provided a copy of the "Company A sponsorship agreement - sponsorship terms and conditions" to support your application and this document is to be read with and forms part of your application for the purpose of this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 84-5

Reasons for decision

Issue 1

Question 1

Personal services income is income that is mainly a reward for an individual's personal efforts or skills. Whether or not payments are mainly a reward for personal efforts or skills is determined having regard to the commercial substance of the arrangement between parties.

Where the commercial substance of the arrangement is that there is one set of obligations, they are looked at together. This is contrasted with the situation where the contract deals with obligations which are completely separate and distinct, in which case each is, in substance, the source of the separate amounts of income.

Taxation ruling TR 2001/7 at paragraph 29 states that "the meaning of personal services income is wider than that which might otherwise be the case under the common law, but it does not include income that is mainly:

In your case, your agreement with Company A includes payment among other items for the use of the athlete's name and image and the placement of the company logo on equipment used by the athlete. The income received for the use of these items is not considered personal services income.


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