Private ruling: Personal service income
Published: October 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the income received by a private company for product endorsement personal services income? | A1: No

Relevant facts and circumstances: The individual is a professional athlete. The entity has entered into a sponsorship agreement with Company A. The entity receives an annual payment paid on a monthly basis for the promotion of Company A and associates. An incentive payment is also payable to the athlete if a particular result is achieved in stated events. The yearly income payable under the contract is principally derived from the product endorsement and the use of the athlete's name and is not produced mainly from the exercise of the athlete's skill and judgement Under the Company A sponsorship agreement - sponsorship terms and conditions (the agreement) the athlete through the entity is required to a) Fulfil the minimum commitment; b) In addition to the minimum commitment perform promotional activities on not less than the number of minimum annual promotional days in each year, on dates and at locations as reasonable directed by the sponsor for the sponsor or the sponsor's strategic or corporate partners; c) Use the athlete's best endeavours to promote, endorse and acknowledge the products, Company A's brand and the sponsor's sponsorship of the athlete in media interviews, personal appearances and conversational situations and to confirm the athlete's use of the products when requested by the sponsor to do so; d) Wear products or promotional clothing and accessories endorsing the products at promotional activities, media appearances, when attending any events and whenever possible, when competing in competitions; e) Allow the athlete's person, image, likeness, name, voice, picture and sports performance to be used throughout the term in advertising, endorsing and promoting the products at such reasonable times, dates or places as requested by the sponsor; f) Allow photographs, film or digital footage, and any other form of audio and video recordings of the athlete to be taken for use by the sponsor, Company A or a licensee or any person authorised by them; g) Allow the photographs, footage or recordings referred to in paragraph (f) or arising from the promotional activities to be used by the sponsor, Company A licensee or any person authorised by them in merchandise and promotional material; h) Permit the manufacture or production by the Company A, an affiliate, a licensee or any other person authorised by them, of merchandise; i) Comply with any reasonable directions given by the sponsor in respect of the making of any piece of equipment. Without limiting the foregoing, all pieces of equipment , used by the athlete in any competition or in association with any promotional activity shall be marked prominently and appropriately with the Company A logo, as notified by the team managers from time to time, placed prominently on the piece of equipment may also be marked with the word other logos and Company A art; and j) Provide the sponsor with written reports not less than as specified in the agreement setting out the number of days the athlete has devoted to promotional activities, the athletes observations, comments and suggestions in respect of the products, trends and developments that generally could affect the sale of products, and such other information as the sponsor may reasonable acquire form time to time. You have provided a copy of the "Company A sponsorship agreement - sponsorship terms and conditions" to support your application and this document is to be read with and forms part of your application for the purpose of this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 84-5

Reasons for decision: Detailed Reasoning - Question 1: Personal services income is income that is mainly a reward for an individual's personal efforts or skills. Whether or not payments are mainly a reward for personal efforts or skills is determined having regard to the commercial substance of the arrangement between parties. Where the commercial substance of the arrangement is that there is one set of obligations, they are looked at together. This is contrasted with the situation where the contract deals with obligations which are completely separate and distinct, in which case each is, in substance, the source of the separate amounts of income. Taxation ruling TR 2001/7 at paragraph 29 states that "the meaning of personal services income is wider than that which might otherwise be the case under the common law, but it does not include income that is mainly: § from an entity supplying goods or granting a right to use property; § generated by assets an entity holds; or § generated by the business structure In your case, your agreement with Company A includes payment among other items for the use of the athlete's name and image and the placement of the company logo on equipment used by the athlete. The income received for the use of these items is not considered personal services income.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.