Case: Commissioner of Taxation v Stone [2005] HCA 21 ; (2005) 222 CLR 289
Outcome: cited
In Commissioner of Taxation v Stone [2005] HCA 21 ; (2005) 222 CLR 289 at [11] to [15], Gleeson CJ, Gummow, Hayne and Heydon JJ described "sport" and "professional sport" in the following terms: "11. "Sport" is usually used to describe forms of (more or less) athletic pastime undertaken for pleasure or recreation. In many contexts, it may be used in contradistinction to "business" or "occupation". It is a word that may carry with it echoes of what once was commonly understood to be the Olympic ideal of the amateur pitting skill and strength against others in the pursuit of excellence. It may convey only the idea of a pursuit which is intended to do no more than provide diversion or amusement to both participants and onlookers. 12. "Professional sport" may be thought to be a phenomenon of the second half of the 20th century. It was during that century that the expression came to be associated with those who made their principal pursuit the playing of sport for reward. During parts of the 20th century, and even before, distinctions were drawn among cricketers between those who were "gentlemen" and those who were "players", between the professional tennis player and the amateur, between the professional boxer and the amateur, between the golf club professional and the club player. What was understood as marking one group apart from the other was sometimes whether the "professional" was employed by an employer (often a club). But that was not the only basis for the distinction. Distinct codes of sport emerged in rugby football and in boxing, where the rules of the game differed according to whether those participating were professionals or amateurs. Then, as professional golf and tennis circuits developed, the distinction might be thought to have turned upon whether the individual sought to make the playing of the sport a full-time occupation and the principal source of income. 13. The plaintiff in Tolley v J S Fry &amp; Sons Ltd ([1931] AC 333) was a well known amateur golfer. The House of Lords upheld the award by a jury of damages for libel of the plaintiff by reason of the publication in 1928 of an advertisement for the defendants' chocolate in which there appeared a caricature of the plaintiff. The innuendo pleaded by the plaintiff had been that (at 337): "[the] defendants meant, and were understood to mean, that the plaintiff had agreed or permitted his portrait to be exhibited for the purpose of the advertisement of the defendants' chocolate; that he had done so for gain and reward; that he had prostituted his reputation as an amateur golf player for advertising purposes, that he was seeking notoriety and gain by the means aforesaid; and that he had been guilty of conduct unworthy of his status as an amateur golfer". 14. However, the distinctions upon which the pleading in Tolley turned 75 years ag o (See Hopman v Mirror Newspapers Ltd (1960) 61 SR (NSW) 631) were never tidy. They never accommodated what probably always was, but certainly emerged as being, the wide variety of circumstances in which some of those participating in sport have received sums of money for, or as a result of, their endeavours on a playing arena. They are distinctions that do not take account of the changing role played by those who have organised sporting competitions. No longer is the organisation of such competitions the preserve, as it once may have been, of the voluntary association or members' club. Now many competitions are conducted for the profit of those who organise them. 15. Athletic contests for prizes are very old. Classifying a participant in such a contest as "professional" does no more than present the question: What is meant by "professional"? That is why asking no more than whether this taxpayer was a "professional" athlete either restates the relevant question, about whether the receipts in question were "income", in words that distract attention from the content of that relevant question, or it seeks to inject presuppositions into the debate that should not be made. Likewise, when considering whether a person who receives sums for, or in connection with, sport is conducting a business, or exploiting that person's skills or abilities for reward, care must be taken lest presuppositions that should not be made are injected into the debate." (Emphasis added.) The highlighted section of the passage is apt to describe the AFL and the players registered to play in the AFL Competition. Paragraph [15] of the passage is a reminder that the term 'professional' should not distract attention from the need for a critical assessment of the activities and income of the taxpayer. 33 Section 8 of the 1997 Act provides, so far as is relevant: "(1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or ..." 34 "Business" is defined in s 995-1 of the 1997 Act to include "any profession, trade, employment, vocation or calling, but does not include occupation as an employee." "Business" was defined in the same way in s 6(1) of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act "). 48 The Commissioner did not contend that it was not possible for a professional sportsperson to be carrying on a business of exploiting his or her sporting talent. As the High Court in Stone said (at 307): "The conclusion that the taxpayer was engaged in a business during the 1998-1999 year proceeds from an acceptance of the proposition that, showing that both before and during that year, the taxpayer was paid to endorse a company or its products as an athlete demonstrated that she has turned her athletic talent to account for money." Spriggs' position is not distinguishable. He turned his football talent to account for money both before and during the 2005 income year: see [27] [31] above. 49 In fact, the Commissioner did not dispute that CSM sought to negotiate "Additional Services" to be undertaken by Spriggs during the 2005 income year. The Commissioner's contention was that CSM's lack of success " demonstrates that ... Spriggs was not sufficiently marketable to sustain a viable business." That proposition should be rejected. That it seeks to import into the concept of "business", in the absence of an allegation of sham, some requirement of viability, is contrary to established authority on the question of what is a business and what business expenses are deductible. No less importantly, the contention is contrary to the facts. 50 First, the proposition is unworkable. By reference to what standard (financial or otherwise) and at what time would "viability" be determined? The Commissioner identified no standard. In any case, what was not viable about Spriggs' business in the 2005 income year? He received and returned assessable income from both Football Payments and a small amount of money for Additional Services. His income position was positive, not negative. 52 It is to the facts in the present case that I now turn. As noted above, Spriggs turned his football talent to account for money both before and during the 2005 income year. Not only had "trading" commenced, there was in fact a "discernible trading pattern". His business derived substantial income. 2005 was not the best year. It was not the worst. The 2005 income year cannot be looked at in isolation. As the High Court said in Stone (at 305), the fact that other sports and other athletes may have attracted larger rewards is irrelevant. 53 In the 2005 income year, Spriggs was carrying on a business for the purpose of gaining or producing his assessable income. For the reasons outlined above (see [43] to [47]), the management fee was incurred by Spriggs in carrying on that business. 54 The Commissioner contends that all expenditure incurred prior to an employment contract is not deductible. In this case, the Commissioner contends that the management fee was incurred at a point too soon to be an expense incurred in gaining or producing assessable income notwithstanding that: (1) the management fee was incurred on 20 December 2004; and (2) the playing contract for the 2005 season was signed on 9 December 2004. 55 The Commissioner's general (not to say universal) contention that all expenditure incurred prior to the playing contract being signed was not deductible because it came "at a point too soon to be properly regarded as incurred in gaining assessable income" should be rejected. Of course, as a general proposition, an expense may "come at a point too soon to be properly regarded as incurred in gaining assessable income". Whether an outgoing does come at a point too soon to satisfy s 8-1(a) of the 1997 Act is determined by reference to the particular facts of each case.