Edited version of your written advice

Authorisation Number: 1012935002732

Date of advice: 13 January 2016

Ruling

Subject: Carrying on a business of a professional sportsperson

Question 1

Are you carrying on the business of a professional sportsperson?

Answer

Yes.

Question 2

Is the amount received from sports organisation A assessable income?

Answer

Yes.

Question 3

Is the amount received from sports organisation B assessable income?

Answer

Yes.

Question 4

Is the amount received from a sponsor assessable income?

Answer

Yes.

Relevant facts

You are competitive sportsperson and a member of an Australian representative team. You have competed at an international level representing Australia at Olympic and Commonwealth games and at the World Championships.

You train on average up to 30 hours a week and this includes your chosen sport and other physical activities such as gym training. You also undertake physiotherapy and sports massage on a regular basis.

Your revenue from your sport is your main source of support. This is derived from funding from, national sporting bodies and government organisations whose purpose is to support sportspersons.

The level of funding that you receive from each organisation changes from year to year.

To receive funding you enter into contracts with the different organisations where you are required to adhere to certain behaviour and performance requirements and to compete in specified events.

You also receive a small amount from a business that sponsors you and from a small number of speaking appearances that you make.

You are not actively engaged in exploiting your image for commercial gain and do not have a business manager. You participate in promotional activities arranged by the sporting organisation to meet the contractual obligations that you have with them.

You are not employed elsewhere due to the time commitment involved with your chosen sport.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. However, this definition simply states what activities may be included in a business. It does not provide any guidance for determining whether the nature, extent, and manner of undertaking these activities amount to the carrying on of a business.

The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators that are applied to determine the matter on the facts.

Taxation Ruling TR 97/11 deals with whether a taxpayer is carrying on a primary production business. However the principles involved can be applied to this situation. It states that in deciding whether a business is being carried on, regard should be had to the following indicators:

• whether the activity has a significant commercial purpose or character

• whether the taxpayer has more than just an intention to engage in business or to commence in the future

• whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

• whether there is repetition and regularity of the activity

• whether the activity is of the same kind and carried on in similar manner to that of the ordinary trade in that line of business

• whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit

• the size, scale and permanency of the activity, and

• whether the activity is better described as a hobby or form of recreation.

Taxation Ruling TR 1999/17 states that a business of participating in sport includes:

• the commercial exploitation of skills developed as a pastime or hobby; and

• the commercial exploitation of skills developed and used in the pursuit of sporting excellence.

Both of these situations will result in sport becoming a taxpayer's vocation or calling and therefore a business. A sportsperson's business could also involve the commercial exploitation of his or her 'public fame' or 'image'. Typically, commercial exploitation will involve an individual utilising his or her skills in a systematic, regular and/or organised manner with a view to obtaining assessable income. This is despite the fact that many of the usual indicators of a business are absent, eg, a business structure, business premises, employees or trading stock.

Every case must be decided on its own particular facts. In essence, whether a business is being carried on will depend upon whether the indicators, as a whole, provide the activities with a commercial flavour: Ferguson v. Federal Commissioner of Taxation (1979) 37 FLR 310; 79 ATC 4261; (1979) 9 ATR 873 (Ferguson's case).

In your case, you are training, competing and undertaking activities associated with your sport to an extent that you are unable to work elsewhere. Your activities are organised and carried out in a manner that maximises your results which then attracts ongoing income.

Your income is derived from your ability to perform and compete at a high level and to attract ongoing funding from organisations that sponsor high performing athletes.

Your sporting endeavours appear to be carried out in a systematic and organised manner.

Your situation indicates that your, competing, training and other associated activities have developed to a level that is significantly more than a personal undertaking or hobby.

We are satisfied based on your receipts and your time spent competing, training and undertaking other associated activities, that there is a commercial purpose to your sporting activities in the relevant financial years.

We acknowledge that you are not actively involved in the commercial exploitation of your 'public fame' or 'image'. Although the commercial exploitation of their fame and image may form part of a professional sportsperson's business, it is not a necessary requirement for a sportsperson to be considered to be in business. In your case, there is a sufficient level of other indicators to enable a decision to be made that you are carrying on the business of a professional sportsperson.

Accordingly, any receipts associated with the activities are assessable under section 6-5 of the ITAA 1997 and any deductions are allowable under section 8-1 of the ITAA 1997.