Edited version of private advice

Authorisation Number: 1052092600118

Date of advice: 7 March 2023

Ruling

Subject: Carrying on a business - assessable income

Question 1

Am I carrying on a business as a professional sportsperson?

Answer

No.

Question 2

Is the amount received from the Australian Sports Commission under the dAIS scheme to be included as assessable income?

Answer

No.

Question 3

Are the voluntary payments to be included as assessable income in the tax return?

Answer

Yes.

Question 4

Can I claim a deduction for remedial massage and physiotherapy?

Answer

No.

Question 5

Can I claim a deduction for attire?

Answer

No.

Question 6

Can I claim the cost of travel to different locations to train and compete?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You started your activities and progressed to an elite standard over many years. You study part time undertaking a degree.

In the past you have had some part-time jobs, however due to training / commitments, you have not maintained a job in order to focus on sporting activities.

Your activities / commitments are generally 25 to 30 hours per week.

You incur expenses for remedial massages and physiotherapy, gym membership, gym attire including gym workout gear and running shoes, gym equipment and supplements. You are required to travel to locations as part of your contract.

An Agreement with the appropriate authorities was provided. You received dAIS Grants from time to time.

A spreadsheet tabling income and expenses is maintained in relation to your activity.

The non-monetary benefits during the ruling period were listed.

You do not receive any appearance fees or payment amounts for official sponsorship contracts. You were not paid for endorsing any products or for any media advertisements or appearances at events.

Your future plans are to continue training for participation at international events. You expect to undertake paid appearances to supplement your income moving forwards.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Am I in 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'. The courts have provided some indicators to help determine if a business is being carried on, but there are no hard and fast rules. All the circumstances need to be looked at to decide whether a business exists.

A client does not need to derive all their income from the activity, as they may also be employed in some other occupation or profession. The important thing is that the activity amounts to the carrying on of a business.

Taxation Ruling TR 97/11 Income Tax: Am I carrying on a business of primary production? is the foremost ATO view on the topic of whether an activity amounts to the carrying on of a business and lists a number of characteristics of a business. The indicators of a business from paragraph 13 include:

•         whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

•         whether the taxpayer has more than just an intention to engage in business;

•         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 a 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, a form of recreation or a sporting activity.

'No one indicator is decisive'. 'The indicators must be considered in combination and as a whole'. 'Whether a 'business' is carried on depends on the large or general impression gained' (paragraph 15 and 16 of TR 97/11).

Taxation Ruling TR 1999/17 talks specifically about the benefits received by individuals involved in sport and whether the benefits are assessable income. Paragraph 29 of TR 1999/17 identifies a business of participating in sport as including:

•         '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'.

'A sportsperson's business could also involve the commercial exploitation of his or her 'public fame' or 'image''.

Where the activity is one in which people take part for sport or recreational purposes, there is a need to show a strong 'commercial flavour' about the activity before it would ordinarily be regarded as a business (paragraph 16 of TR 97/11).

Significant commercial purpose or character

Your activities during the income year ended 30 June 20XX did not involve the commercial exploitation of your 'public fame' or 'image'. The activities were not carried on for commercial reasons or in a commercially viable manner. Your current and future plans are to continue training with the intention of competing at future events. There is no business plan with a business description, or any research that has been conducted that outlines income expected from participating in the activity.

Morethan an intention to engage in business

Sporting activity and excellence is the main focus of the activity undertaken, there is no apparent intention or tasks completed that demonstrate business activity at this stage.

Apurpose of profit as well as a prospect of profit

Your purpose of engaging in the activity was not to make a profit at this stage.

Repetition and regularity

While the activities are systematic, regular and completed in an organised manner, these activities are not undertaken with a view to obtaining assessable income in a commercial quantity or manner.

Activityof a kind and similar in manner to businesses in the industry

The situation may arise where a business is carried on with the intention of it being profitable in the future, but objective evidence points to a profit being unlikely in the short term. During the income year ended 30 June 20XX, the activities did not result in substantial payments through endorsements, sponsorship, media appearance fees, as would be expected from a sportsperson carrying on a business.

Planned,organised and carried on in a manner directed to making a profit

There is no evidence of a business being carried on in a systematic and organised manner, rather than on an ad hoc basis. The activity should generally conform with ordinary commercial principles to amount to the carrying on of a business.

Size,scale and permanency

The activities take up a substantial amount of time, however the sporting motive and associated tasks outweighs any commercial purpose of the activities. As the activity is not carried on for commercial reasons and in a commercially viable manner, it would not be considered a commercial enterprise.

Whether it is a hobby, recreation or sporting activity

The pursuit of a hobby or sporting activity is not carrying on of a business for taxation purposes. However, this activity can sometimes change into a business.

In weighing up the indicators of carrying on a business outlined in TR 97/11, it has been determined that you were not carrying on a business during the income year ended 30 June 2022, because your activities did not have a significant commercial purpose or profit intention, you did not intend to engage in business, and your activities were not carried on in a businesslike manner.

dAIS Grants and deductions

Class Ruling CR 2015/19 is about grants provided by the Australian Sports Commission under dAIS and Class Ruling 2021/100 talks about income tax and payments made by the Australian Sports Commission under the dAIS athlete grant scheme. Where the person is not carrying on a business as a sportsperson, the dAIS grant is a CGT asset that is acquired when the grant is accepted (paragraphs 61 to 64 of CR 2015/19 and paragraphs 62 to 66 of CR 2021/100). However, any capital gain or capital loss resulting from the receipt of the dAIS payment is disregarded as it is received as a reimbursement of expenses under a scheme established by an Australian government agency (paragraph 118-37(2)(a) of the ITAA 1997). As the dAIS grant is not assessable income, you cannot claim a deduction for sporting activity expenses in relation to that grant.

Voluntary payments and deductions

Voluntary payments made under a grant agreement to provide financial support in the form of periodic or recurrent payments that are expected and relied upon for expenses will be assessable income (paragraph 12 of TR 1999/17).

Where a sportsperson receives assistance to enable them to live while pursuing their sporting activity, this is called a 'voluntary payment'. Although the sportsperson enters into an agreement, the arrangement is not an 'employment relationship', and it is not 'a contract to render services', rather 'an incident of sport' (paragraph 52 of TR 1999/17). The activities are carried out 'for the sportsperson's own benefit', and 'for the purpose of achieving sporting excellence, developing personal qualities and athletic abilities'. The voluntary payment is assessable as income as it is paid under an agreement and it is a periodic, regular, recurrent, and expected (paragraph 48 of TR 1999/17). If you receive a non-monetary benefit that is solely related to a voluntary payment, the value of the benefit is not included in your assessable income (paragraph 54 of TR 1999/17).

Deductions are allowable under section 8-1 of the ITAA 1997 where the expense is 'incidental and relevant' to earning the assessable income and has the 'essential character of an outgoing' that was incurred to earn the assessable income (paragraph 51 of TR 1999/17). Expenses incurred in relation to an activity from which you receive a voluntary payment do 'not have the essential character of producing the payment'. The 'expenditure is for the sportsperson's own benefit and development', 'related to the pursuit of sporting excellence' and so that they can qualify to be able to meet the criteria to receive a voluntary payment. They are not an allowable deduction under section 8-1 against the voluntary payment (paragraph 53 of TR 1999/17).

You have participated in your chosen sport for some time and have achieved successful performances at national and international events. You are a sportsperson able to pursue sporting excellence, whose only income in relation to activities are regular voluntary payments. These payments provide financial support to meet ongoing living and activity related expenses. Accordingly, these payments are assessable income according to ordinary concepts. Associated expenditure is for your own benefit and development and are not allowable as a deduction.

Note that sponsorship payments may be income. It would depend on the situation whether the sponsorship payments would be voluntary payments or income from carrying on a business as a professional sportsperson.