Case: Federal Commissioner of Taxation v Maddalena (1971) 45 ALJR 426
Outcome: distinguished
Finally, even if an item of expenditure cannot be traced to a particular item of income that fact of itself does not mean that the expenditure is not deductible: Total Holdings at 224 and the authorities there cited. However, an item of expenditure may not be deductible if it was incurred at a point too soon before the income producing activity commenced or if it was incurred after the income producing activity has ceased: Steele at [44]; Federal Commissioner of Taxation v Maddalena (1971) 45 ALJR 426; Riverside Road Lodge at 313; Amalgamated Zinc at 309 and AGC (Advances) at 197-198. 56 The phrase "come at a point too soon to be properly regarded as incurred in gaining assessable income" was first used by Menzies J in Maddalena . However, that is not what occurred here. The Commissioner's reliance upon Maddalena is misplaced. The case is distinguishable on a number of bases. 57 The management fee was expenditure outlayed within a framework in which Spriggs, as a professional footballer, produced his income. That framework was the AFL Player Rules, the Representation Agreement and the Standard AFL Playing Contract. That framework has to be considered in context including Mr Shinners' evidence that it is rare for a player to negotiate his own playing contract and that he estimates 90% of AFL players currently have an accredited agent. 58 Moreover, the management fee was not incurred prior to the generation of the income. The income was ongoing. The income that was generated as a result of the negotiations of the Accredited Agent was, in each year (except 2004), from two necessarily related sources. One of those sources was the playing contract. The other was his additional services which he was able to provide only because he was a contracted AFL player. The term of Spriggs' playing contracts varied from between 1 and 2 years. For each year of each of the playing contracts negotiated by Connors of CSM, the Representation Agreement imposed an obligation on Spriggs to pay a percentage of his Football Payments to CSM. 61 Some analogies may or may not be apposite. And argument by analogy must never be allowed to obscure the particularity of the arrangements in question. Maddalena concerned an era of professional sportsmen and women which bears little or no resemblance to professional sport in the twenty first century. One only has to point to the absence of the electronic media, let alone the internet, in the 1930's to make good that proposition. Secondly, the factual matrix in Maddalena is very different to the factual matrix of Spriggs. 62 In Maddalena , Menzies J described the taxpayer and the issue in the following terms (at 548-9): "The question is whether the taxpayer, who earns his living as an electrician and as a professional footballer, is entitled to deductions under s 51 of the Income Tax Assessment Act [ 1936 (Cth)] of travelling expenses, and under s 51 and 64A of the Act of legal expenses, incurred by him in seeking and obtaining a new contract with a new club to play football. ... Of course, in his career as a professional footballer, a player who is successful ordinarily moves from grade to grade and from club to club. His employment is part-time and it is common for a player to play football in representative teams as well as with his club ... Furthermore, it is common knowledge that because a man is a successful professional he can earn fees from advertising and other sources which, of course, form part of his assessable income. Nothing I say in this judgment bears upon expenditure to earn such fees. Here it is the agreement with Newtown that the taxpayer spent money to secure." (Emphasis added.) 63 Spriggs was a full time professional footballer. Maddalena was not. Spriggs seeks to claim the management fee as a deduction. That fee was incurred after the playing contract was signed, not before, and could not be charged if no playing contract was negotiated. Maddalena sought to claim travelling expenses and legal expenses, expenses which were incurred before the playing contract and which were incurred regardless of whether or not a playing contract was secured. The management fee incurred by Spriggs did not " come at a point too soon to be properly regarded as incurred in gaining assessable income ". 64 In relation to the "negative limb" of s 8-1 of the 1997 Act , the Commissioner submitted that even if the management fee was an outgoing incurred by Spriggs in gaining or producing assessable income, it was on capital, not revenue, account and therefore not deductible under s 8-1 of the 1997 Act . This argument also fails.