ATO ruling: Big tax breaks for Australia’s elite sports stars

AFL players and other sports stars have won lucrative tax breaks for their “fame”, which will be worth tens of thousands of dollars a year to the biggest names.

Sports stars such as Lance Franklin will be eligible for tax breaks of about $20,000 a year. Picture Sarah Reed

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AFL players and other sports stars have won lucrative tax breaks for their “fame”, which will be worth tens of thousands of dollars a year to the biggest names.

Every professional sportsperson will be eligible to cash in on the image rights perk, delivered by the Aus­tralian Taxation Office.

Sports stars — including the highest-paid AFL players such as Lance Franklin and Nathan Fyfe, who earn about $1 million a year — will be allowed to direct 10 per cent of their playing income to a private trust or company, where it will ­attract a tax rate of just 27.5 per cent.

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This move will hand them tax breaks of about $20,000 a year.

Cricket superstars like David Warner, Steve Smith and Mitchell Starc earn $2 million for national duties alone, and could be eligible for about $40,000.

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Buddy Franklin in action for the Sydney Swans. Picture: Sarah Reed

Jy Simpkin celebrates a last term goal. Picture: Wayne Ludbey

Cricket superstar Mitchell Starc. Picture: AFP Photo/Lindsey Parnaby

The ATO has ruled the free kick is justified to compensate elite athletes for “exploitation” of their “fame and image” to promote their sport.

But the controversial guideline, backdated to July 1, will ignite debate, given the heavy tax burden borne by average workers and the nation’s ballooning debt.

Government debt soared beyond $500 billion for the first time last month, while this year’s Budget deficit is $29.4 billion.

The top-earning sport stars now pay a top marginal income tax rate of 45 per cent, plus a 2 per cent Medicare levy.

Some elite athletes will be eligible to claim even more than the 10 per cent — to be decided on a case-by-case basis.

Details of the new arrangement were presented at an AFL Players’ Association forum in Melbourne yesterday.

The concession will apply to all 817-listed AFL players, and athletes from all Australian sporting codes are also ­eligible.

Nat Fyfe of the Dockers celebrates a goal during the 2017 AFL round 16 match in Melbourne. Picture: Adam Trafford/AFL Media/Getty Images

Players’ Association executive Brett Murphy said last night: “This ruling recognises the value of a player’s image and ensures that they receive fair return for its commercial use.”

AFL players struck it rich last month, striking a $1.8 billion, six-year deal that saw the average player’s wage climb to $371,000.

A statement explaining the new tax guidelines around professional athlete salaries, posted yesterday, said: “The ATO will accept that up to 10 per cent of these payments can be treated as referable to the use and exploitation of the professional sportsperson’s ‘public fame’ or ‘image’ under the associated resident third-party’s licence and are therefore to be treated as the income of the associated resident third-party.”

AFL players will also be permitted to direct club marketing payments — totalling more than $1 million per team — and independent sponsorship deals to their trusts or private companies.

The ATO ruling suggests restrictions on AFL player earnings via the league-enforced salary cap had been a factor in its decision.

David Warner earns $2 million for national duties alone and could be eligible for a tax break of $40,000. Picture: AFP Photo/Glyn Kirk

“It is also recognised that a sporting code’s collective bargaining agreement can place restrictions on amounts that professional sportspeople can be paid (such as minimum terms and conditions) and that these restrictions can suppress the level of the sportsperson’s remuneration,” it said.

An ATO spokesman told the Herald Sun: “We have received numerous … requests from sportspeople asking for advice about the tax treatment of payments for the use and exploitation of their image rights. As (this) is an issue that spans many sports codes, the ATO has responded … to clarify the way forward for sportspeople and their managers.

“The ATO has worked extensively with expert counsel, professional sports associations and other key stakeholders to provide the guideline, which takes into account the status of image rights in laws in Australia along with an understanding of the nature of sports people’s promotional activities within their normal contractual obligations.”