Apportioning the income of professional sportspersons to their other entities

On 19 July 2017 the Australian Taxation Office (ATO) released Practical Compliance Guideline PCG 2017/D11 ('the Guideline').

The Guideline addresses the matter of the extent to which lump sum payments for the provision of a professional sportsperson's services and the use and exploitation of their 'public fame' or 'image' under licence can be apportioned. The Guideline sets out a 'Safe Harbour' for doing so.

This PCG can be relied upon in circumstances where:

  • a professional sportsperson grants an "associated resident entity" (such as a trust) a non-exclusive licence to use and exploit the sportsperson's 'public fame' or 'image',
  • that resident entity (and not the sportsperson) is contractually entitled to receive the income from the use and exploitation of the professional sportsperson's 'public fame' or 'image', and
  • the payment is not referable to the use or exploitation of rights which are recognised and specifically protected under Australian law, such as copyright, trademarks or registered design rights.

The generally recognised ATO approach considers that the marketability of a sportsperson's 'public fame' or 'image' will determine the appropriate proportion of any payment attributable to their said 'public fame' or 'image'. However, the ATO has also indicated that determining their marketability could be a diffcult, not to say costly, exercise.

In the Guideline the ATO has indicated that it will accept up to 10% of these payments being treated as referable to the use and exploitation of the professional sportsperson's 'public fame' or 'image' under the associated resident entity's licence. Therefore such payments are to be treated as the income of the associated resident entity and not of the professional sportsperson.

However the Safe Harbour guideline is not intended to apply where the payments are made specifically for the use and exploitation of the professional sportsperson's 'public fame' or 'image' such as:

  1. payments made under an additional service agreement which are made in connection with the use of a sportsperson's image and do not require additional personal services,
  2. payments made in connection with the use of a sportsperson's image in programs for licensed products, and
  3. payments received for testimonial programs where the use of a sportsperson's image is featured (rather than requiring any further personal services).

The Guideline is specifically for sportspersons. It does not cover the exploitation of public fame or image in other professional circumstances, such as for professional entertainers and media personalities. However, it is arguable the same underlying principles may apply to these professionals.

Please contact your Walker Wayland NSW advisor if you wish to discuss this further.