Private ruling: Assessable income
Date of advice: 27 November 2023
Published: 15 January 2024
Ruling period: Year ended 30 June 20XX
Date scheme commenced: XX July 20XX

Ruling: Q1: Is the income you receive from a sports club per match assessable under section 6-5 of the Income Tax Assessment Act 1997? | A1: Yes.

Relevant facts and circumstances: You signed an agreement (Agreement) with a sports club. This Agreement includes: • You are a Player. • The document states it is not a binding contract. • The document states that it is not an offer of employment. • The document states that there is no employment relationship between you and the sports club. • You will be paid a specific amount per match.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Section 6-5(1) of the Income Tax Assessment Act 1997 provides that your assessable income includes income according to ordinary concepts which is called ordinary income. 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 are assessable income for coaches and 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. The distinction between being an "amateur" or a "professional" sportsperson is not determinative of the tax treatment of an amount received. | Detailed Reasoning - Income and benefits received by an employee: The relationship between an employer and an employee is a contractual one. Whether a sportsperson is an 'employee' must be considered from the totality of the relationship. Payments which are assessable income include salary, wages, bonuses, allowances, sign-on fees, inducement or retention payments for continuance of service, termination payments, cash prizes and cash awards. Payments received from public appearances, product promotions and endorsements, if received in connection with an employment contract, are also assessable income. | Detailed Reasoning - Income for services provided outside of employment: An amount paid for the provision of services to benefit the payer will be assessable income even if there is no employment relationship (paragraphs 25 and 26 of TR 1999/17) and that income includes payments, prizes and awards received in connection with services provided. 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. | Detailed Reasoning - "Voluntary" payments: Payments to sportspersons are often made in the absence of any prima facie legal obligation of the payer to do so and are referred to as voluntary payments. This can arise where a person enters into an agreement that purports not to be legally binding. The fact that a payment is voluntary does not mean that it cannot be assessable income (paragraph 11 TR 1999/17). A payment received as part of a series of voluntary payments will be assessable income if it has one or more of the following characteristics: (1) it is made under an agreement or arrangement to provide financial support in the form of periodical, regular or recurrent payments (2) it is received in circumstances where the sportsperson has an expectation of receiving the payment as part of periodical, regular or recurrent payments, and the sportsperson is able to rely on the payment for their regular expenditure, or (3) it is part of periodic, regular or recurrent payments made in substitution of income. Whether the receipt of an "occasional" voluntary payment is assessable income must be determined on a case-by-case basis. It is considered that an 'occasional' voluntary payment received in respect of sporting activities is assessable income if the recipient is an employee, is engaged in the provision of services, or carries on a business in respect of those sporting activities. Payments that do not satisfy one of these requirements are usually in the nature of a "windfall gain" i.e. receipts incidental to a pastime or hobby and payments received on purely personal grounds. | Detailed Reasoning - Application to your circumstances: You were offered a place to play for a sports club. You signed an Agreement with the sports club that purports not to be legally binding and claims no employment relationship exists between you and the sports club. The Agreement stipulates that you will be paid per match. While the Agreement claims not to be legally binding, the sports club not having a 'legal' obligation to pay you does not affect if the income is assessable. It can be seen that you are receiving voluntary payments periodically or recurrently under an agreement according to when you play, which is deemed to made as part of a series of voluntary payments. Whether or not you are an employee or contractor is not relevant to determine if the income is assessable. If you are an employee, the match payments are assessable on the basis that they are earnings. If you are a contractor, the match payments are assessable on the basis that you (under an agreement) are rendering services to the sports club for an expected monetary benefit, where those payments are tied to performing in matches for the sports club which is considered an objective and tangible benefit to the sports club (the payer). Therefore, the match payments you receive is considered assessable income.