Today, sports stars are known for their sporting prowess and often become a brand in and of themselves.
In order for third parties to exploit the sports stars public fame, they need access to their image rights. Image rights include a wide range of personal attributes, more than what would normally come to mind when you think of the word “image”. These include:
2 voice signature, likeness; and
3 photograph, illustration or image.
From the concept of image rights stems image rights structuring and this is where tax law comes in.
Image rights structuring is big business overseas. Many attribute David Beckham as the father of image rights in professional soccer when his manager negotiated with Manchester United to pay a large annual fee for the use of his image in its marketing – over and above his generous salary package!
There is growing evidence of sports starts using strategies in Australia. AFL players have adopted an analytic approach to identify the frequency of the use of their image to prove the percentage of payments that can be allocated to image rights.
Image Rights in Australia
ATO private rulings have dealt with image rights structuring and trusts. These rulings have determined the relationship between the granting of these licenses to trusts and the capital gains tax (CGT) consequences as well as the asset and personal income services.
Case law has established that it is extremely important to accurately define the nature of payments being made and to ensure that image rights structures have been established properly.
What we have learned from rulings and case law is that image rights structuring is a viable tax planning option for sportspeople and other celebrities in Australia. However, those that wish to use the strategies need to proceed with extreme care.
Draft Practical Compliance guidelines
The ATO issued a Draft Practical Compliance Guide for consultation purposes in relation to image rights structuring. The Guideline sets out a “Safe Harbour” for apportioning lump sum payments for the provision of a professional sportsperson services and the use of their public fame under licence. In essence, the Guideline proposes what it says needs to be done to be eligible for a 10% “Safe Harbour” allowance.
In our view, the ATO has proposed a conservative approach which it hopes will “herd” most sportspeople and their advisors to adopt in fear of having to defend an alternative structure outside of the “Safe Harbour” regime.
For many, this will be enough but in some circumstances and where the facts allow, a bolder approach is worthwhile considering if structured properly.
Get the right structure
There are several elements that need to be satisfied to create a viable image rights structure. These include satisfying CGT requirements, compliance with income tax obligations, payment structure and logical and commercial reasons to satisfy the anti-avoidance provisions of the Tax Act.
It is highly recommend that a sportsperson wanting to manage their tax affairs more effectively consider using a professional adviser to work on their image rights structuring.
Partner – Tax
+61 2 8022 1222
Madison Marcus Law Firm produced this article. It is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.