ATO ‘influencer tax’ crackdown on celebrity endorsements
A draft ruling from the ATO could significantly change how famous entertainers, sports people, and influencers profit from their fame.
A draft ruling from the Australian Tax Office could significantly affect how influencers, entertainers and sportspeople profit from their fame, while also raising new questions for the businesses that secure their promotional services, a legal advisory firm says.
Last week, the ATO revealed proposed changes to how celebrities, influencers, and other public figures can exploit their image, signalling the end of a common tax framework used to split endorsement income.
As it stands, high-profile professional athletes, for example, can separate income earned from their sports team from their earnings off the pitch, like payments for image usage rights.
Athletes can establish separate companies or family trusts to serve as the beneficiary of those image rights payments.
Payments to that separate company or trust can then be disseminated back to the individual, or to their family members — potentially incurring a lower tax rate than if they were lumped in with their payments from the athlete’s primary sporting contract as personal income.
The new draft tax determination seeks to end that framework by declaring those payments as ordinary personal income, not the earnings of a company or trust established to exploit their fame.
“While the trustee has a right to use that fame, the deed does not provide any property to the trustee which could allow a third party to use it for a fee,” the ATO said.
“Therefore, the individual should include that fee amount in their assessable income in the relevant income year.”
Proposed changes could have significant impact, advisory firm says
The draft determination seeks to end an “extraordinarily common” tax arrangement for notable individuals, said Garry Winter, director of WRP Legal Advisory and talent management and advisory firm W Sports and Media.
Winter, whose firms represent major sporting figures, said the draft tax determination could have such an impact on celebrity earnings that top-level talent might even consider tax residency abroad.
“What I see the impact of this doing is making Australia less attractive or less competitive on the international sphere,” he told SmartCompany.
The proposed changes “almost necessitate that people at the higher end, higher profile people, cease to be tax residents at all in Australia, and they’ll put their residencies in a more favourable jurisdiction that’s more favourable to them like the US,” he adds.
Businesses that promote their products with paid celebrity endorsements could also soon reconsider their practices, says Winter.
With traditional contracts with an athlete’s company or family trust now under question, some businesses are wondering if they were in “potentially an employment arrangement versus a contracting arrangement”.
“It’s also about people engaging those sportspeople and celebrities, and whether they have increased commitment or an increased obligation from their point of view around their tax compliance issues as well,” says Winter.
Consultation period comes years after federal budget promise
The draft determination seeks to end what tax professionals have described as a lingering regulatory grey area.
The ATO angled towards a crackdown on such tax arrangements in 2017, but the arrival of the 2018 federal budget, which promised legislative tweaks to the same effect, caused the tax office to withdraw its own efforts.
However, such legislation never came to pass, giving public figures leeway to structure their affairs as they saw fit.
The ATO says its final determination will apply retrospectively, covering “income years before and after its date of issue,” except where arrangements were entered into as part of its (now withdrawn) 2017 guidance.
While official guidance on the matter was “long overdue”, Winter said his firms will submit their concerns to the ATO as part of its consultation process.
Public consultation on the amendments close on November 4.
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