Edited version of private advice

Authorisation Number: 1052208210028

Date of advice: 11 January 2024

Ruling

Subject: Assessable income - employment - sport - hobby

Question

Are the payments from the sports club for participating in fixed competition events for them for the relevant season assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You take part in a sporting activity as a hobby and commenced participating in the activity for a club on a paid basis in the relevant year.

You have signed a contract with the club which binds the club to pay you for participating in competition fixtures for them for the relevant season.

You are paid a set amount per week with a bonus for a win or a draw.

You are not paid for any period for which you take leave.

Payments are made over the duration of the sporting season.

No tax or superannuation is paid by the club on your behalf.

These payments are deposited fortnightly into your account by electronic funds transfer.

Your registration fee is waived subject to the conditions of your contract being met.

You receive no other benefits from your participation in team activities or association with the club.

Entitlement to these payments is subject to you meeting obligations under the contract.

Your obligations under this contract include:

•                     complying with a code of conduct

•                     being bound by disciplinary regulations

•                     complying with competition rules

•                     complying with any other conditions specified

•                     taking part in sporting fixtures exclusively for the club

•                     taking part in fixtures for which you are selected at the dates, times, and venues nominated by the club or the competition in which it participates

•                     taking part in all fixtures to the best of your ability and skill and in accordance with the laws of the game

•                     wearing apparel provided by the club when performing your obligation under this agreement

•                     punctually attending all fixtures, official training sessions, and all club functions

•                     complying with all reasonable directions of the club in relation to transport, behaviour, and dress when making any public appearance for the club.

Under the terms of your contract with the club you are bound to attend and perform at all fixtures, training sessions, and club functions punctually at times determined by the club or the competition in which it participates.

Either party to the contract may terminate the contract if the other is in breach of the contract and does not remedy that breach withing 14 days of receiving written notice.

Your contract with the club states that the club may pass on the costs of fines received in the course of an official fixture. There is no other mention of possible costs from defects in your performance under this contract. Sports injury insurance is provided by the competition administrators.

As agreed in your contract with the club you are provided with all apparel needed for your participation except footwear.

Each item of the provided apparel bears the club's name or logo.

Your expenses have included the cost of your footwear.

You have had to travel away to fixtures that have each been within a half hour drive.

Your contract recommends you also purchase full medical and hospital insurance for any injuries not covered by the sports injury insurance provided by the competition administrators.

You have no intention of participating in the sport professionally and have other full-time employment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) assessable income includes ordinary income. Ordinary income is defined in the ITAA 1997 as 'income according to ordinary concepts'. Typical examples of ordinary income include salary, wages, allowances, bonuses, dividends, rent, and proceeds from carrying on a business.

Taxation Ruling TR 1999/17 Income tax: sportspeople - receipts and other benefits obtained from involvement in sport provides the Commissioner's view as to when receipts from involvement in sport are assessable income. It applies to officials, such as coaches, as well as participants. Paragraph 17 of TR 1999/17 sets out the relevant factors used when determining whether an amount is ordinary income as being:

•                     whether the payment is the product of any employment, services rendered, or any business

•                     the quality or character of the payment in the hands of the recipient

•                     the form of the receipt, that is whether it is received as a lump sum or periodically; and

•                     the motive of the person making the payment.

Examples of payments received from involvement in sport considered to be assessable income include salary, wages, bonuses, allowances, sign-on fees, inducement or retention payments, termination payments, cash prizes and cash awards. Money and other benefits received for participation in sporting activities as a hobby or pastime are not assessable income and are not expected to cover or exceed expenses.

You have signed a contract with a sports club under which they agree to pay you for participating in fixed competition events for them for the relevant season. Payment is made at a weekly rate, with an additional bonus paid for a win or a draw, paid to you fortnightly. In the relevant financial year you have been paid substantially more for your participation than you spent on your only stated expense.

As the amount you have been paid by the club significantly exceeds your expenses the income you are receiving for this activity cannot be considered income from a hobby or pastime. The nature of the income you have received from the club, and whether it is assessable, have been assessed against the indicators in paragraph 17 of TR 1999/17 as follows.

Whether the payment is the product of employment, services rendered or any business

Whilst you are not in the business of being a sportsperson, as your activities do not meet the indicia of carrying on a business as set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?, the payments could be for services rendered. Paragraph 25 of TR 1999/17 provides:

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. 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.

You have not performed beyond your obligations within the contract with the sports club, nor have you provided a service for the benefit of another party, and we must therefore consider whether the contract is one of employment.

In determining whether your payments are the product of employment by the club we must consider whether you are an employee of that entity. The relationship between an employer and an employee is a contractual one. As discussed in Taxation Ruling TR 2023/4 Income tax: pay as you go withholding - who is an employee? the nature of a relationship with a paying entity is determined from the rights and responsibilities set out in the contractual agreement with the engaging identity.

Indicia of employment by an engaging entity identified through case law are listed with their application to the legal rights and responsibilities set out in engagement contracts in TR 2023/4. These indicia include:

•                     presentation as an emanation of the engaging entity

•                     control and the right to control

•                     the ability to delegate, subcontract, or assign work

•                     responsibility for results

•                     provision of tools and equipment

•                     responsibility for risks.

The nature of your relationship with the club is considered against these indicators in the following paragraphs.

Presentation as an emanation of the engaging entity

A contractual obligation to present to the public as part of the engaging entity's undertaking is a key consideration in determining employment relationships. In presenting to the public as a part of the engaging entity's business an individual is seen to be serving the engaging entity's interests.

You are provided with and required to wear apparel with the club's name or logo when taking part in public fixtures. You are also expected to abide by a code of conduct, where you represent the club, in addition to complying with all reasonable directions of the club in relation to transport, behaviour, and dress when making any public appearance for the club.

Control and right to control

The right of control over how, where, and when an individual is to perform under the terms of their contract with the engaging entity is an important indicator in determining if they are an employee. The existence of this right in an engagement contract is an indication that an individual is an employee.

Your obligations under the contract with the club include:

•                     complying with a code of conduct

•                     being bound by disciplinary regulations

•                     complying with competition rules

•                     complying with any other conditions specified

•                     participating in sporting fixtures exclusively for the club

•                     participating in fixtures for which you are selected at the dates, times, and venues nominated by the club or the competition in which it participates

•                     participating in all fixtures to the best of your ability and skill and in accordance with the laws of the game

•                     wearing apparel provided by the club when performing your obligation under this agreement

•                     to punctually attend all fixtures, official training sessions, and all club functions

•                     complying with all reasonable directions of the club in relation to transport, behaviour, and dress when making any public appearance for the club.

Under this contract the club has the right of control over how, where, and when you are to play.

The ability to delegate, subcontract, or assign work

An unfettered right to delegate, subcontract, or assign their work to others is a critical indicator of whether an individual is an employee or contractor. The existence of this right in an engagement contract will be a very strong indication that the individual is not an employee.

There is no provision in the contract for you to delegate, subcontract, or assign your duties as a participant.

Responsibility for results

The way in which an individual is paid by an engaging entity and the process whereby the amount of that payment is decided is a strong indicator in determining if an individual is an employee. Payment for hours worked, activities performed, or a commission rather than for results is an indication that an individual is engaged to serve in the engaging entity's undertaking as an employee. Payment is more likely to be for results if it is made without reference to the time spent to produce the agreed outcome.

Under your contract with the club you are bound to attend, and perform at, all fixtures, training sessions, and club functions punctually at times determined by the club or the competition in which it participates. The club pays you by the week for this attendance, not for the results achieved in any of these activities. You are also paid a bonus for matches resulting in a win and a bonus for matches resulting in a draw. You are not paid any amount for periods you are on leave. While the potential bonus is paid with reference to an outcome based on team performance your payment is made with reference to the activities you have performed in meeting your obligations under your contract.

Provision of tools and equipment

Provision of tools and equipment by the engaging entity for the use of an individual in carrying on the work of the engaging entity is an indication of employment. Equipment that is not specialised or used only for the activity of the engaging entity is less likely to be significant, and the emphasis given to this indicator will depend on the nature and circumstances of the engagement. An employee may also be reimbursed for expenses incurred through their employment or use of their own assets.

Under your contract with the club you are provided with all apparel required for participation except footwear.

Responsibility for risks

An employee has little or no risk of incurring costs arising from injury or defects in the activity they have undertaken in the service of the engaging entity. They bear no commercial risk or liability for such injury or poor workmanship.

Under your contract with the club they may pass on the costs of fines received on the field from an official fixture. There is no other mention of possible costs from defects in your performance under this contract. Sports injury insurance is provided by the competition administrators.

Summary

Your contract with the club can be considered against these indicators as one of employment. Under the terms of your contract with the club you are obliged to present as an emanation of the club when taking part in club activities, the club has control over where, when, and how you take part in those activities, you have no right to delegate, subcontract, or assign your part in these activities, you are paid for attendance and participation in these activities, provided with the apparel required for participation in club activities, and have little responsibility for injury or defects in your performance.

The quality or character of the payment in the hands of the recipient

Payments that are expected or relied on are often considered income. You expect but do not rely on the payments you receive from the club for your participation in matches, training, and club functions. You have other full-time employment and are able pay for your living expenses from your income from your other employment.

The form of the receipt

Regularity of payments is an indicator that those payments can be considered income. You are paid fortnightly over the weeks you take part in club activities in the year you are contracted for.

The motive of the person making the payment

Motive of the person making the payment is a less significant factor in determining whether an amount is considered ordinary income. The club have signed a contract with you so you will participate in sporting fixtures for them, and they pay you to do this. The payments are described in that contract as reimbursement. Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement discusses the definition of reimbursement. Reimbursement is not defined in the ITAA 1997 and so has the ordinary meaning of repayment for expense or loss incurred, or a refund. The amount of a reimbursement is a precise account for the actual expenditure. As your payment is for a predetermined amount regardless of the expense you incur it cannot be considered as a reimbursement. The payment also far outweighs any expenses you have incurred in performing this activity.

Conclusion

The payment you receive under your contract with the club is a product of your employment by the sports club to participate in sporting fixtures for them, is expected, regular, and cannot be considered a reimbursement. The payments you received from the sports club are considered ordinary income and are assessable under section 6-5 of the ITAA 1997.