The Government recently proposed a change to the taxation of ‘high-profile individuals’ such as celebrities, sportspeople, internet personalities and entertainers who earn income from the use of their fame or image. This can occur by way of advertisements, sponsorships, wearing associated brand products, public appearances and the promotion of products.
We service many taxpayers that would be impacted by any changes to the taxation of income from such activities, and have made a submission in response to the Treasury consultation paper as part of our role as adviser to, and advocate of, private business owners and individuals in the middle market.
Income from the exploitation of an individual’s fame or image (fame or image income) is generally taxed consistently with other forms of income, provided it is earned by the individual. However, individuals with fame or image often seek to license their fame or image to a separate entity, such as a company or trust, for use by a related entity.
When individuals make use of these licensing structures, the other entity may be contractually entitled to the income attributable to the individual’s fame or image, and it is this method that the Government would like to address, removing the opportunity to take advantage of often concessional tax treatment.
The Government’s proposal has the potential to increase the compliance burden and complexity that may occur where these rules interact with other parts of the tax legislation – particularly the rules surrounding ‘Personal services income’ or PSI.
In our submission we have recommended that a broad definition of “fame or image” contain an express exclusion for income that satisfies the definition of PSI in section 84-5 of the Income Tax Assessment Act 1997. We feel that this would contain the scope of any measures and ensure that the two types of income are dealt with under separate regimes.
One of the other recommendations we have made is request that the proposed measures are not intended to apply to categories of people who are high-profile in their particular industry but are not generally considered “famous”. For example, a well-known lawyer, accountant, doctor or other professional may represent their organisation at a speaking engagement or publish an article on behalf of their firm – with the firm being paid a fee for this.
If the measures had applications in all occupations, this could lead to uncertainty in relation to the treatment of such income as it could be considered that the fee being paid for the “fame or image” of the well-known member of the industry. Applying the definitions of “entertainers and sportspersons” or “performing artist” as they appear in other parts of the tax system would help to minimise uncertainty.
Additionally, many high-profile individuals will (for reasons unrelated to tax) continue to enter into or be subject to contracts in the name of a related entity rather than their personal capacity. This can arise for a number of reasons (which are further detailed in our submission) and we share the concern that on going forward with the proposed measures, these individuals who derive income from the use of their image or fame in foreign countries may be subject to unrelieved double taxation unless a provision is included within the new legislation.
We thank the Treasury for the opportunity to provide these comments, and the full submission is available for download here.
If you would like to discuss your own taxation arrangements or those of someone that you currently represent, please contact your Pitcher Partners expert.