Private ruling: Whether sponsorship is assessable
Published: January 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: A2: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 6-5 | Income Tax Assessment Act 1997 - Section 8-1

Reasons for decision: Summary: Any income or benefits in the form of equipment obtained through sponsorship from this activity will not be included as assessable income and your expenses associated with the activity will not be deductible. Your activity is not considered to be carried on as a business, it is more of the nature of a hobby or recreational/sporting activity. | Detailed Reasoning - Detailed reasoning: Taxation Ruling TR1999/17 discusses benefits received by individuals from involvement in sport. The Ruling sets out the Commissioner's view as to whether these benefits are included in your assessable income. Under section 6-5(1) of the ITAA 1997 an amount is assessable income if it is income according to ordinary concepts (ordinary income). Paragraph 9 of TR 1999/17 provides that the following are assessable income: · payments received from, in respect of, or in connection with employment · payments or other benefits received for, in respect of, or in connection with services provided · amounts of a revenue nature or other benefits received, including prizes and awards, from carrying on a business of participating in sport. This includes the exploitation of personal skills in a commercial way for the purpose of gaining reward. You have stated that you will be trying to get sponsorship in the form of cheap or free gear, from companies that would like you to write an endorsement of their products for them to publish, most likely on their own company websites/facebook. There is nothing to indicate that the supply of equipment is in place of any services provided by you in any other capacity. In that case it would be clear that your activities are not in connection with employment or services provided in return for payment of income or other benefits. This is because there is no guarantee that your performances will result in the type (or amount) of exposure the companies would like. Therefore, any benefits received from your activity are only assessable (and expenses deductible) if you are carrying on a business for tax purposes. There is no definitive test to ascertain whether someone is considered to be carrying on a business or not. Various courts and tribunals have held that the following indicators are relevant when considering whether a business is being carried on: a) whether your activity has a significant commercial purpose or character, b) whether you have more than just an intention to engage in business, c) whether you have a purpose of profit as well as a prospect of profit, d) whether there is repetition and regularity to your activity, e) whether your activity is of the same kind and carried on in a similar manner to businesses in your industry, f) whether your activity is planned, organised, and carried on in a business-like manner, g) the size, scale and permanency of your activity, h) whether your activity is better described as a hobby, or recreation. The indicators are discussed in detail in Taxation Ruling TR97/11 entitled 'Am I carrying on a business of primary production?' Although the ruling refers to primary production, the indicators are no different, in principle, from the indicators as to whether activities in any other area constitute the carrying on of a business. No one indicator is decisive, and all indicators should be considered in combination and as a whole. The following is an analysis of your activities against the business indicators: | Detailed Reasoning - (a) Significant commercial activity: You have stated that your activity is not a competitive sport. You are not going to receive income from participating in the sport. You may receive recognition of being in the elite group at the top of this field. The only benefits you hope to receive is in the form of sponsorship equipment to offset some of your expenses, however you consider the expenses will greatly outweigh the sponsorship you may obtain. To be a sportsperson in business, it is expected that efforts be directed towards making a profit. If the only sponsorship you are seeking is the equipment to allow you to participate in your activity you will be unable to produce a profit. We consider that your activities, at their present level, lack significant purpose or character in terms of conducting a business. | Detailed Reasoning - (b) An intention to engage in business: You have indicated that you do not intend to carry on this activity as a business. You are merely seeking sponsorship to offset costs and are going to be involved in the activity for a limited period. . | Detailed Reasoning - (c) Purpose of profit and prospect of profit: Your high expenses involved in this activity seriously erode the possibility of making a profit. You have no source of income but are only seeking to reduce your costs by obtaining free or reduced price equipment. There is no evidence in the facts provided that you have taken active steps to enhance the profitability of your activity, in terms of seeking cash sponsorship, grants or other income, given the high level of expenses that you incur. This is consistent with your view that you participate in the activity merely as a hobby. | Detailed Reasoning - (d) Repetition and Regularity: You intend to attempt some big activities at this time because you are at your peak now, in training, experience and fitness. The amount of activity is not directly related to trying to obtain increased sponsorship. You would have to expand the nature of your work to increase sponsorship to meet this criteria. It is more likely that the activity is of the nature of a hobby or recreational/sporting activity. | Detailed Reasoning - (e) Activities carried on in a similar manner to other in business in your industry: Usually sportspeople in business identify a market or niche where income can be produced and tailor their work towards making a profit. Your activities do not seem to be those of a sportsperson in business in that you do not have the opportunity to receive regular amounts of prize money for your activities and only have the aim of one source of moderate sponsorship to defray some of your expenses. | Detailed Reasoning - (f) Whether activity is planned, organised, and carried on in a business-like manner: It is acknowledged that participation in a sport at your level may require a considerable amount of organisation and record-keeping. However, these same attributes could equally apply to someone who is vigorously pursuing a hobby. They are not exclusive attributes of a business. It is whether these attributes are combined with a business-like manner which is important. In your case you have stated that you consider the activity to be a hobby. We do not consider that your activity is carried on in a business-like manner, for the reasons explained above (eg. not tailoring activities towards profits). | Detailed Reasoning - (g) Size, scale and permanency of the activity: The size and scale of your income-producing activities are non-existent. You are only trying to reduce costs. The permanency of your activity is limited as you have determined that you will only be highly active over the next couple of years. | Detailed Reasoning - (h) Whether the activity would be better described as a hobby, or recreation.: You would like to regard your activities as a hobby/sport. The expenses associated with conducting the activity will greatly outweigh any sponsorship. Participation in activities generating pastime or hobby receipts is a social or personal pursuit of a non-commercial nature. Pastime receipts are not intended to, nor do they usually, cover expenses. We consider that, for tax purposes, your activity as it stands would be better described as a hobby or a sporting pursuit. | Detailed Reasoning - Expenses: Section 8-1 of the ITAA 1997 allows you a deduction for any loss or outgoing that is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business, to the extent that it is not of a private, capital or domestic nature. | Detailed Reasoning - CONCLUSION: A majority of the above factors point to your activity as being the pursuit of a hobby rather than constituting a business. This is because it does not have a commercial character, there are no regular income-generating transactions being carried on and you cannot demonstrate a reasonable belief of profit from the activities in the future. As such, any income or benefits in the form of equipment from this activity will not be included in your assessable income as you are not considered to be carrying on a business. Additionally, your expenses incurred in respect of this activity are not deductible as the expenses do not relate to the production of your assessable income nor were they necessarily incurred in carrying on a business. You should note, however, that if your level of activity changes in the future (for example you start selling stories, receive payments for personal presentations, financial sponsorship for image rights), that the status of your activity may change from one of a hobby to one of a business. You should continually reassess this status on an annual basis by considering (i) if your level of activity has changed and (ii) whether the status of your activity has changed from one of a hobby to one of a business.

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. | Questions and Answers: Is the sponsorship that you earn in association with your activity considered to be assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | Are you entitled to claim a deduction for expenditure incurred in relation to your activity under section 8-1 of the ITAA 1997? | Relevant facts: Under your current employment you work two days per week. | You have been involved in this activity all over the world for 20 years. You have had more than 100 feature articles published in magazines (unpaid), given countless talks at clubs. | Your activity requires enormous amounts of expensive equipment | You are going to seek out sponsorship, in the form of cheap or free gear, from companies that would like you to write an endorsement of their products for them to publish, most likely on their own company websites/facebook. You are planning to attack this goal in a business like manner, by spending one day per week writing to companies asking for sponsorship. There is no realistic expectation that you will make a profit. Your expenses are high on these trips. | This is your hobby and you are at your peak now, in training, experience and fitness. You are only planning to do this seriously for 2012 and 2013. The activity isn't a competitive sport.