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Treatment and taxation of an athlete's image rights

Treatment and taxation of an athlete's image rights

By Frank Hinoporos and Raoul D’Cruz



An arrangement entered into by an image rights individual must be legally robust and effective and certain parameters set by the ATO need to be followed.


  • Image rights arrangements under Australian law are legally and commercially complex.
  • The benefits that can be obtained by having an image rights arrangement will only be enjoyed if the arrangement is legally enforceable and carefully documented and implemented.
  • The taxation considerations include a recent draft pronouncement from the ATO about image rights arrangements and professional sportspeople.

The fame which comes with success in sport, media or entertainment can be financially lucrative. The ability to use the image of a famous athlete, media personality or entertainer (an “image rights individual”) to advertise or endorse a product is a valuable right. Often an athlete, media personality or entertainer will earn more through advertising, sponsorships or endorsements than by plying their trade in the sporting arena or on the stage or screen.

Like many wealthy and well-remunerated people, image rights individuals will need sophisticated commercial arrangements to build and protect their wealth for the long term. In Australia, there are ways these goals can be achieved without the image rights individual being exposed to undue financial, tax or reputational risk. Clear and effective legal documentation is crucial to achieving this.

Image rights in Australia

Commercially, an “image right” is the right to exploit a person’s name, image and other identifiable characteristics (such as their likeness, name or signature).

Under Australian law, a person may create intellectual property in their name, image or other identifiable characteristics, in the form of a copyright or a trademark. Doing so may provide the person with the legal rights and protections against infringement or unauthorised use. A further degree of legal protection can be obtained by the registration of company, business and internet domain names featuring the relevant name.

However, absent separately identifiable intellectual property in the form of a copyright, trademark or registered design, under Australian law an individual’s name, image or likeness is not property of any kind. As such, if an individual’s name, image or likeness is used by another entity without authority, and the individual suffers loss or the public is misled as a result, the individual would need to seek recourse under the common law of passing off or the Competition and Consumer Act 2010 (Cth).1

The availability of a cause of action to an individual whose image rights have been used by another entity without authority is crucial to the Australian Taxation Office (ATO) view on the structuring of image rights arrangements. The ATO’s view is that an individual (grantor) may grant a non-exclusive licence to a third party (grantee) to use and commercially exploit the grantor’s image rights.2 The effect of such a licence, if properly drafted, is to vest rights in the grantee: that is, the right to use the image rights of the grantor and to not be sued by the grantor for doing so.3 In the ATO’s opinion, under an effective licence arrangement the rights arising from the licence are property and an asset of the grantor.4

Image rights arrangements

One practice that is commonly used when licensing image rights is for an image rights individual to set up a private company or a trust which they control (controlled entity) and to grant the controlled entity a licence over their image rights. A third party wishing to use the image rights will in turn enter into a commercial agreement with the controlled entity for the use of the image rights. The fee which is paid by the third party for the use of the image rights is paid to the controlled entity and not to the image rights individual directly.

An arrangement such as this may be set up for various reasons, including:

  • Image rights may have a significant market value and be a source of current and future earnings. As such, image rights are an asset, at least in the commercial sense of the word. Many individuals with high wealth or earnings seek to protect their accumulated assets from commercial or legal risk they may have personally from their professional or business activities. A common way of getting this asset protection is for assets to be owned by an entity that, while it may be controlled by the individual, is a separate legal personality. In many family groups this will be a private company or the trustee of a discretionary trust.
  • Many image rights individuals’ commercial and business dealings reach a scale and level of complexity on par with a substantial private enterprise. As such, an image rights individual would generally look to bring a “corporatised” approach to their affairs. Also, over the course of a career, an image rights individual may branch out into other professional or commercial ventures, including with unrelated partners or equity participants.

Establishing an image rights arrangement

To ensure that the benefits of an image rights arrangement accrue to the image rights individual, the arrangement must be correctly established and be legally effective. This means:

  • the image rights must have a true and independently ascertainable market value so that the arrangement has true economic substance
  • the arrangement must be correctly structured and documented. In particular, the licensing agreement between the image rights individual and the controlled entity, and the contractual arrangements between the controlled entity and third parties, must be carefully drafted to ensure they correctly reflect the intended arrangement and are legally enforceable. If the structure is not documented, or the documentation is incorrect or imprecise, the arrangement may be unenforceable or ineffective
  • even if the structure is correctly established and documented, it must be administered by the parties in accordance with the documentation. This includes correct accounting and tax compliance.

The importance of establishing an image rights arrangement carefully, and ensuring consistency between the image rights individual’s arrangements and the contractual arrangements with third parties, was brought home in a recent revenue law decision.

Brisbane Bears–Fitzroy Football Club Limited (club) v Commissioner of State Revenue5 is a decision of the Court of Appeal of Queensland’s Supreme Court. The key issue in the case was whether payments made to players and coaches for the use of image rights were in substance payments made to employees in consideration of promotional and marketing services performed or rendered. If this was so, the payments would be “taxable wages” for the purpose of the Payroll Tax Act 1971 (Qld).

The Court of Appeal considered evidence of the contractual arrangements in place between the club and the players and coaches, in particular an agreement styled as an additional services agreement. On the evidence, the Court of Appeal found that the nature of the promotion and marketing services required to be provided by the players and coaches under these agreements, and for which the club provided consideration, were in substance services of a personal nature and not for the use or exploitation by the club of the players and coaches’ image rights. An important element of the evidence was that there was no attribution of the consideration paid under the agreement between services of a personal nature and payments for image rights.

Image rights arrangements and tax

Under a correctly established image rights arrangement, the image rights income is not earned by the image rights individual, so it does not form part of their taxable income,6 which is taxed at current personal marginal tax rates of up to 47 per cent.7 Instead, it is earned by the controlled entity, as the grantee of the licence over the image rights. If the controlled entity is a company, the income will be taxed at the current company tax rate (at either 27.5 per cent or 30 per cent)8 and franked dividend distributions can be paid to its shareholders. If the controlled entity is a trust, the income will be taxed at the tax rate of the beneficiary who receives the income.

It is crucial that the tax implications of entering into the structure are considered and that appropriate professional advice is obtained by the image rights individual. In particular, the grant of a licence over the image rights may be a taxable event giving rise to a taxation liability. This will depend on the “market value” of the image rights licence at the time it is granted.

Determining the market value of any asset is a difficult and inexact task, especially for a licence over an individual’s image rights, where the asset is unique and the future earnings may be unpredictable. With the exception discussed below, it is advisable to obtain an independent market valuation from a suitably qualified valuation expert.

Importantly, the taxation advantages of such a structure must be ancillary to its commercial and asset protection advantages and not the sole purpose for entering into the arrangement. This is a matter which the Commissioner of Taxation (Commissioner) may determine based on the objective facts. If the sole or dominant purpose of entering into the arrangement is to obtain a tax benefit (whether or not there is commercial substance to the arrangement), the Commissioner may use his general anti-avoidance powers under Part IVA of the Income Tax Assessment Act 1936 (Cth) to deny the tax benefit.

Moreover, the image rights individual has the option of applying for a private binding ruling from the ATO which confirms the tax consequences of a particular arrangement. A private binding ruling is an opinion from the ATO about the application of the tax law to a particular taxpayer’s circumstances. Taxpayers who get a private binding ruling from the ATO will have a degree of certainty about the application of the tax law to their affairs. This is because the ATO is generally bound to apply the law in accordance with a private binding ruling if the taxpayer carries out a transaction or arrangement in precisely the way it was set out in the private binding ruling.

ATO guidance for professional sportspeople

The ATO has released Draft Practical Compliance Guideline 2017/D11: Tax treatment of payments for use and exploitation of a professional sportsperson’s “public fame” or “image” (Guideline), which considers image rights structures set up by professional sportspeople.

The Guideline was designed as a practical compliance tool to assist professional sportspeople with image rights arrangements to manage their personal tax risk. It provides that the ATO will accept that up to 10 per cent of the total payments made to a professional sportsperson under their playing contract, enterprise bargaining agreement or agreement for additional services can be attributed to the use of the sportsperson’s image rights. This is generally referred to as a “safe-harbour” approach; basically this means that if a player adopts the 10 per cent attribution amount, the ATO will not require the sportsperson to furnish additional evidence to support that this is a reasonable amount to attribute to their image rights.

There are three important points to note about the Guideline:

  • it is dependent on the sportsperson having an image rights arrangement in place that is legally effective and correctly documented
  • the 10 per cent is not a cap or a limit – a sportsperson may attribute an amount higher than 10 per cent as payment for the right to use or exploit their image rights, but they will need to hold objective valuation evidence which supports a higher attribution on the basis that their image rights have a higher market value
  • this applies to an attribution of payments made to the sportsperson under their playing contract, enterprise bargaining agreement or agreement for additional services, and does not apply to any commercial arrangements the sportsperson may have with unrelated third parties.

The Guideline is specifically limited to professional sportspeople. Other image rights individuals may choose to structure their affairs so as to reflect the Guideline, but they will not have the same “safe-harbour” protection from ATO scrutiny as is afforded to professional sportspeople. Moreover, at the time of writing the Guideline is still in draft and the subject of consultation with the ATO.9


Frank Hinoporos is special counsel in the tax team at Hall & Wilcox Lawyers. He regularly presents on tax topics at various professional forums.

Raoul D’Cruz is a lawyer in the tax team at Hall & Wilcox Lawyers. He advises on a broad range of income tax and GST issues. He has advised clients in the sports, media and entertainment industries.


1. See ss18 and 29 of the Competition and Consumer Act 2010 (Cth).

2. See ATO Practical Compliance Guideline PCG 2017/D11 (Draft) (PCG 2017/D11), paras 19-23. ATO Interpretative Decision ATO ID 2004/511.

3. PCG 2017/D11, para 22.

4. Note 3 above.

5. (2017) QCA 233.

6. Additionally, if the arrangement is effective, the payments received by the controlled entity may not be attributable back to the image rights individual as “personal services income” for the purposes of Part 2-42 of the Income Tax Assessment Act 1997. Broadly, the purpose of these rules is to prevent taxpayers from alienating income which has the substance of salary and wages to a controlled entity where it may be preferentially taxed.

7. This is the highest marginal tax rate applicable in the 2017/2018 income year to Australian resident individuals, inclusive of the Medicare levy.

8. The 27.5 per cent corporate tax rate applies in the 2017/2018 income year to companies that satisfy the definition of a “small business entity”. The 30 per cent corporate tax rate applies to all other companies. An accountant or tax advisor should confirm whether a company is a “small business entity”.

9. The Guideline was released in draft form on 19 July 2017. The ATO invited submissions from interested parties, which needed to be submitted on or before 1 September 2017. There is no set date by which the Guideline is to be issued in its final form although the authors understand that it is expected in or around June 2018. The Guideline in its final form may be different to the draft version which is referred to in this paper.


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