Mar 28, 2023

After a long delay, the ATO has finally released updated guidance TD 2022/D3 on the taxation of income generated from the “fame and image” of individuals such as celebrities and sportspeople. The guidance is expected to be finalised in July 2023.

In the past, many individuals have sought to enter arrangements where they would transfer the rights to the use of their name, image, likeness, identity, reputation etc. to a related entity such as a company or trust on the basis that the income derived from these rights could be assessed in the hands of the related entity rather than the individual. Back in 2017, the ATO issued a draft practical compliance guideline which basically set out a 10% safe harbour threshold that could potentially be adopted in situations like this.

However, the ATO withdrew its guidance in this area and we have been waiting for confirmation on how the ATO plans to approach this area.

This draft determination explains that such arrangements are not valid from a legal perspective. This is because an individual with fame has no property in that fame, so it is not possible to transfer any interest in their fame to another entity. The result is that any income derived in connection with an individual’s fame should be recognised as ordinary income of the individual rather than being treated as income of a related entity. In that case, the related entity is receiving an amount that is being applied or dealt with on the individual’s behalf.

The ATO indicates that the tax outcome can potentially be different in cases where the individual is engaged to provide services to the related entity. For example, an individual with fame may be engaged by a related entity to attend product launches and promotional events for a third party. In these circumstances, contractual payments by the third party to the related entity can be assessable to the related entity. However, both the PSI rules and the general anti-avoidance rules in Part IVA would still need to be considered. The ATO’s general position in this area is that income relating to the personal services of an individual should ultimately be taxed in the hands of that individual.

The ATO indicates that it will not devote compliance resources to apply the views expressed in the draft determination in connection with income derived before 1 July 2023 from arrangements that are consistent with the principles outlined in PCG 2017/D11 and which were entered into before the release of the draft determination.

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